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Hong Kong – Employee Choice Arrangement: Rights And Obligations On Employers And Employees.

17 October, 2012

 

Legal News & Analysis – Asia Pacific – Hong Kong – Labour & Employment


The Mandatory Provident Fund Schemes (Amendment) Ordinance 2012 which aims to regulate the MPF intermediaries was gazetted on 29 June 2012 and the long-awaited Employee Choice Arrangement (“ECA“) will come into operation with effect from 1 November 2012.

 

Position before the introduction of the ECA

 

Since the implementation of the MPF regime in 2000, the employers are responsible for choosing the MPF scheme for their employees. Under the old regime, employees can only choose which investment funds to invest into within the employer’s choice of MPF scheme.

 

Before the ECA, the accrued benefits derived from both employer mandatory contributions and employee mandatory contributions made during current employment have to stay in the MPF scheme of the employer’s choice before cessation of employment. In case an employee has transferred accrued benefits derived from mandatory contributions relating to his former employment(s) or self-employment(s) to the contribution account under his current employment, such mandatory contributions cannot be transferred out also.

 

For the voluntary contributions (including both employer and employee contributions derived from current or former employment(s)), their transferability is subject to the governing rules of the relevant MPF scheme.

 

Position after the introduction of the ECA

 

With the introduction of the ECA, the employees will be provided with greater autonomy and flexibility in choosing the MPF scheme of his own choice. The employees will be allowed (but not obliged) to transfer the accrued benefits derived from employee mandatory contributions in their contribution account made during current employment to another MPF scheme of the employees’ own choice.

 

Unless the governing rules of the original MPF scheme provide for more frequent transfers, the transfer can be carried out on a lump sum basis at least once every calendar year (i.e. from 1 January to 31 December).

 

In addition to the above, if the employees have transferred accrued 
benefits derived from mandatory contributions relating to their former employment(s) or self-employment(s) to the contribution account under current employment, such mandatory contributions can also be transferred to another MPF scheme of their own choice in a lump sum at any time.

 

The accrued benefits which have been transferred out will be kept in the employees’ own “personal account” in the MPF scheme of their choice and can thereafter be transferred at any time as in the same case for balances in a member’s “preserved account” before the ECA.

 

There will be no change in terms of the transferability of employer mandatory contributions made during current employment and also voluntary contributions from current or former employment(s)/self-employment(s).

 

What are the obligations on the employees?

 

With the implementation of the ECA, the employees will be given the additional rights and flexibility to transfer their accrued benefits to the MPF scheme of their own choice. Of course, they are not obliged to do so and in fact, before they make any decision in relation to transfer out their accrued benefits, they should consider carefully all the relevant factors and seek professional advice, if necessary.

 

The key factors that the employees will need to consider include the following:

 

  • Services of the existing MPF scheme
  • Fees and charges
  • Investment performance
  • Choices and risk profiles of investment funds
  • Employee’s own personal circumstances

 

In case the employee has decided to transfer the accrued benefits to an MPF scheme of his own choice, he would be responsible for completing and sending a written notice (i.e. Employee Choice Arrangement – Transfer Election Form [Form MPF(S)-P(P)]) to the new trustee of his scheme choice. The whole transfer process will take around 6-8 weeks and the employee should be reminded that fund prices may fluctuate during the processing period. The employee is NOT required to inform his current employer of the transfer and the employer will not be involved in the transfer process.

 

In terms of cost involved, the trustee can only charge for the “necessary transaction costs” that are incurred or reasonably likely to be incurred by the trustee in selling or purchasing investments in order to give effect to the transfer and which are payable to a party other than that trustee.

 

What are the rights and obligations on the employers?

 

The ECA has not provided additional legal rights nor has it imposed additional legal obligations on the employers. The employers will not be required to be involved in the transfer process nor will they be required to contact the new trustee which the employees have chosen.

 

From the employer’s perspective, the employee mandatory contributions from current employment will continued to be made to the employer’s MPF scheme and there will be no change to that. In case a transfer of employee mandatory contributions from current employment has been made and the employee wishes to transfer accrued benefits from subsequent employee mandatory contributions to another MPF scheme, he has to make another election in the next calendar year (or later in the same calendar year if the governing rules of the original scheme allow frequent transfers).

 

There will also be no change in the offsetting arrangement for statutory severance payment or long service payment. Any offsetting will be made from the accrued benefits derived from employer mandatory contributions made under current employment and this explains why those accrued benefits will not be transferable under the ECA and they must be kept in the contribution account of the employer’s MPF scheme before cessation of employment.

 

Even though the employer will not be involved in the transfer process, the employers should be prepared that in practice, the employees may approach them on any enquiries regarding the ECA. Given the employees may have enquiries on the transfer, the employer should be prepared to answer enquiries from the employees and give the employees relevant information where possible and feasible to do so (including information on different MPF schemes). The employer should also provide the employees with the information for completing the transfer election form in case the employee is in doubt, e.g. employer’s identification number.

 

Employers should review and communicate with their existing MPF service provider to understand if the transfers have been running smoothly for their employees and if there is any way the employers can help the employees in achieving their purposes.

 

 




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