After a long previous history, the Belgian Law on Supplementary Pensions, also known by its Belgian abbreviation WAP or as the Vandenbroucke Law was finally published in the Belgian Law Gazette of 15 May 2003, and will become effective as of 1 January 2004. In the previous issue of Van Havermaet Actueel we already discussed the motivation of the WAP, the introduction of social pension plans, the withdrawal options for pension plans with their tax regime, and the limitation of the individual pension promises.
In this issue of Van Havermaet Actueel we will discuss the other important changes of the WAP. Without going into details and discussing all exceptions, we will try to provide a comprehendible summary to non-specialists of sometimes very technical regulations.
Return guarantee
The supplementary pension plans can be subdivided into "fixed contributions" or "objectives to be achieved".
With a fixed contribution the pension regulations define the annual premium as a percentage of the salary. In such plans the annual contribution is therefore fixed, and the final pension capital is the result of the premiums with their interest, after deduction of management costs and possible risk premiums for coverage for decease or invalidity. In other words, this therefore means that the cost is fixed for the employer and that the result for the employee depends on the costs, assigned returns and possible risk premiums.
At an objective to be achieved, the pension regulations define the supplementary pension capital as a percentage of the salary, taking the performed career and the legal pensions into account. In that way, the final result for the employees is therefore fixed and the annual premium depends on the costs and the assigned returns. In other words, this therefore means that the return and costs risk are at the expense of the employer.
In order to protect employees in pension plans with fixed contributions, the WAP now introduces a minimum return guarantee that equals:
- 3.25 from the employer's contributions, upon deduction of a maximum of 5% costs and the risk premiums for decease and invalidity;
- 3.75 from the personal contributions, upon deduction of a maximum of 0% costs and the risk premiums for decease and invalidity.
Furthermore, this minimum interest guarantee is an employer's obligation that is not connected with the applied rates by an insurer. Concretely, this means that, if an insurer applies higher costs and/or lower interest guarantees, the assigned profit participation should compensate the difference with the minimum return guarantees. If not, the employer has to pay the difference. In order to prevent unpleasant surprises, we therefore advise you to check the applied rate structure.
In order to somewhat weaken these strict return guarantees for long-term investments, the interest guarantees of 3.25% or 3.75% for staff members who leave the company in the first five years upon participation in the pension plan, are replaced by the inflation rate over the participation period.
For employees in pension plans with an objective to be achieved, a different return guarantee applies. Based on their already performed career these employees are at any moment already entitled to a part of the promised pension capital. The accrued reserve that corresponds with this is at least equal to the actualisation of the accrued pension capital with an interest rate of 6%.
In the current legislation it sufficed to at least reserve this amount for each staff member, and the further obligations of the employer stopped upon the departure of the staff member.
In the WAP every employee is still entitled to the promised pension capital if he/she does not transfer his/her accrued pension reserve. Concretely this means that the assigned return by the insurer on the accrued pension reserve must at least be equal to the interest rate used for the actualisation. If not, the employer has to pay the difference, even for staff members who have already departed. In this case we also advise you to check the mode of financing and the determination of accrued rights, in order to prevent surprises.
Plan changes
On the condition that the information and participation obligations are observed, a pension plan can be changed at any time.
However, a plan change may never result in the decrease of the accrued rights until the moment of the change.
However, for pension regulations with an objective to be achieved, the WAP adds an important provision. In the current legislation the accrued rights were determined on the basis of the already performed career to the plan change on the one hand, and the salary at the moment of the plan change on the other. In concrete terms, this meant that the accrued rights were calculated once-only at the moment of the plan change and remained unchanged afterwards.
However, according to the WAP the accrued rights keep evolving annually with the increasing salary which, even after the plan change, will require additional financing.
Transferring an objective to be achieved will therefore in the future become very difficult and require the separate management of two pension plans (the old objective to be achieved and the new plan).
À la carte plans
In the current legislation there was fiscal uncertainty with regard to the deduction of premiums for à la carte plans where each staff member, within the limits of the assigned premium budget, can choose freely between pension, decease and invalidity. After all, the strict interpretation of the fiscal texts required that a pension plan should be applied in the same way for all staff members.
The WAP now clearly states that à la carte plans are permitted and that the premiums can be deducted fiscally. The only condition is that the insurer can separately manage the division of the budget between pension, decease, invalidity and hospitalisation at any moment, and can vouch for the correct fiscal handling.
Illegal pension plans
The current legislation already stated the illegal differences between staff members of the same category and between men and women.
The WAP makes these provisions ever stricter and adds two important illegal differences:
- age discrimination in pension plans with fixed contributions: if the premium is made dependant on the age of the staff member, the maximum difference may be equal to 4% increase per annum (e.g. the premium for a 25-year old is 2%, then the premium for a 26-year old may at most amount to 2% x 1.04 = 2.08%, for a 27-year old at most 2.08% x 1.04 = 2.16%, etc.). This provision was introduced in order to prevent that young staff members would pay very low premiums and older staff members extremely high premiums.
- Accrued rights after one year of participation: each plan definition that can result in no accrued rights after one year of participation is illegal. This provision has far-reaching consequences and prevents "creative" definitions that try to get round the obligatory participation per staff category (e.g. everyone participates and the premium equals 5% of the salary above 75,000, as a result of which, in practice, premiums are only paid for the higher salaries).
Apart from that, the WAP expressly states that in an à la carte plan no minimum decease capital may be imposed. After all, women live longer than men, which means that the premiums for decease are lower for women than for men, which in turn means that, in an à la carte plan for women, more of the budget can go to pension accrual than for men, which results in illegal discrimination between men and women.
Individual continuation
A new staff member that enters into employment as of 2004 can oblige the employer to start up a group insurance for him/her if:
- He/she already participated in a pension plan at the previous employer for 42 months.
- No pension plan exists for his/her staff category.
- The annual premium that is deducted from his/her salary at most amounts to 1,830 Euros (for 2004).
This option means no immediate additional cost for the employer, since it concerns a personal contribution. Nevertheless, in the long term this could lead to additional administration if various plans at various insurers should be monitored.
Information obligations
As with every law changes in this regard, the information obligations are broadened with the intention to increase the transparency.
Apart from the already existing obligations, the WAP additionally provides for:
- Statement on the annual information sheet of:
- The accrued reserve including possible return guarantees
- The accrued reserve of the previous year
- The accrued pension capital
- All variable elements for the calculations
- As of 45 years: the pension interest that corresponds with the pension capital
- At the request of each insured person, he/she receives;
- The pension regulations
- An historic overview of the accrued reserves and pension capitals since 1996
- The management report of the pension institution
- Annual report to be formulated by the pension institution, stating:
- Mode of financing
- Mode of investment
- Obtained returns
- Applied cost structure
These additional obligations will at first increase the tasks of the insurers. The extended and detailed information obligations can however result in additional questions from your staff members, for which you should prepare yourself.
Participation of employees
Within the framework of the increasing participation of the employees, the WAP provides for the annulment as a possible sanction during a term of one year, if the following procedures are not complied with:
- Introduction, changing or annulment of the pension plan via collective labour agreement if:
- The pension plan applies to all employees
- The pension plan provides for personal contributions
- Introduction, changing or annulment of the pension plan in the other case after prior advice (depending on the scope of the company with works council, committee for prevention and security, trade union or individual) on:
- Mode of financing
- Contents of the annual information sheet
- Choice of pension institution
- Application, interpretation and changing of the regulations.
Bob Daenen
December 2003