TAIWAN: Tackling DB Retirement Risk
In Taiwan, employees who joined a company before 1 July, 2005 would be automatically enrolled in the Labor Standards Law (LSL) retirement scheme, which is a mandatory Defined Benefit plan that employers need to carry the liability for until employees terminate service with the company.
Different from other countries in the world, there are not many choices in regards of funding vehicles for LSL; the employer must do monthly contributions to the Bank of Taiwan (BoT) (with a legal contribution requirement from 2%~15% of salary) while these savings would only be able to be withdrawn for employee’s severance (only if the business entity is suspended) or retirement.
In early 2015, a new amendment of LSL took effect which required companies to annually review its BoT fund and make sure the money is enough for those who will be eligible for retirement within a year. If there is any insufficiency, the employer needs to make up the shortfall by the end of the next March each year.
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