Retirement Pay System
Retirement Pay System in Korea
  30 days average salary for each year of consecutive years employed should be paid as the compulsory retirement pay. Related regulations are as follows
Labor Standard Act of Korea, Article 34 (Retirement Pay System)

Retirement pay that is paid by employer to a retired worker shall be governed by what is stipulated in Worker’s Retirement Pay Guarantee Act of Korea.

Worker’s Retirement Pay Guarantee Act of Korea, Article 4 (Retirement Pay System)





 
 


 




 
An employer shall establish not less than one retirement pay system to pay retirement pay to a worker who retires. : Provided that this shall not apply in cases where the worker has been employed for less than one year or work hour is less than 15 hours per week when averaged for four weeks. -> (Comment: Retirement allowance and retirement pension are those of retirement pay system) -> (Comment: No matter what reason worker terminates employment with, retirement pay shall be paid. Even when worker voluntarily resigns, it is paid too)
 
In establishing the retirement pay system as referred to in paragraph (1), a system of different retirement allowances to different persons within the same business, shall not be permitted.
 
When employer wants to select retirement pay system or wants to change selected retirement pay system, consent shall be necessary from labor union, if any, which is organized by more than 50% of workers or from majority of workers(called as ‘the Representative of Worker’), if there is no labor union which is organized by more than 50% of workers.
 
When employer wants to change contents of selected retirement pay system, employer shall listen the opinion from the Representative of Worker. : Provided that consent from the Representative of Worker shall be necessary when change is unfavorable to workers.
 
A. Retirement allowance
  Under the Korean Labor Standards Law, all workers with more than one year of service are entitled to receive a lump-sum payment of retirement allowance (called as ‘the mandatory severance pay’ in other word) upon termination of their service with the Company, based on their length of service and rate of pay at the time of termination. The law says that an employer shall establish a retirement pay system whereby an average salary of more than 30 days shall be paid for each year of consecutive years employed as a retirement allowance to a retired worker. Payment obligation is imposed on employer regardless of reason for termination of employment. Therefore, resignation as well as dismissal is entitled to receive it. With this kind of characteristics, which are mainly comes from the fact that retirement allowance is supplementary measure to Korea’s poor national pension system, it is called as the mandatory severance pay. However, if worker is employed less than one year, this shall not be applied.
 
Workplace can choose retirement pension system instead of retirement allowance system. For this, please refer to next one.
 
30 days average salary for each year of consecutive years employed is the rate for retirement allowance which Korea Labor Standard Act stipulate. Act only stipulate minimum requirement. Therefore, companies can pay more than this guideline if they have internal guideline which general meeting of shareholders approved. Practically, most companies follow only Labor Act guideline. 
 
To calculate average salary, regular payments like base salaries and regular allowances are taken for recent three months and irregular payments like incentive or bonus are taken for recent 12 months.
 
However, registered directors are not covered by labor act because they are not labor. For them, there must be approved guideline or bylaws approved from general meeting of shareholders. 
 
Related regulations are as follows
Worker’s Retirement Pay Guarantee Act of Korea, Article 8 (Retirement Allowance System)



 
An employer who wants establish a retirement allowance system shall establish system by which the average wages for not less than thirty days shall be paid for each one year of continuous employment as a retirement allowance to a retired worker.
 
Notwithstanding the provisions of paragraph (1), an employer may, upon a request of a worker, even before his retirement, pay a retirement allowance calculated on the basis of consecutive years of employment. In this case, the number of consecutive years of employment for the calculation of a retirement allowance after such advance payment, shall be reckoned anew from the moment of the latest adjustment of balances.
 
B. Retirement pension
  The retirement pension system came into effect from December 1, 2005 and the main contents of the system are as follows.
(1) Switch to the retirement pension system




 

 









 
If a workplace intends to switch to the retirement pension system form the retirement allowance system or if a newly established workplace intends to adopt the retirement pension system, it should obtain consent from a workers’ representative (a labor union with a majority of workers as its members or a majority of workers in case there is no such labor union).
 
If a workplace makes changes to the contents of the adopted system, it should hear the opinions of a workers’ representative. (In case the changes are unfavorable for workers, it should obtain their consent.)
 
The type of the retirement pension system may be chosen by each individual workplace through labor-management consultation from between a defined benefit type or a defined contribution type.
* Defined benefit: The amount of retirement benefits workers will get is determined in advance. The amount of contributions an employer should pay changes according to the results of fund operation.
* Defined contribution: The amount of contributions an employer should pay is determined in advance. The amount of retirement benefits workers will get changes according to the results of fund operation.
- Employer and workers are allowed to make that choice autonomously because conditions and workers’ preference may be different among workplaces.
 
The scope of its application will be extended to workplaces with less than five workers to ensure the equal application of statutory welfare systems.
However, given the ability of employers of workplaces with less than five workers to bear the burden and their preparation period, this will begin to apply sometime between 2008 and 2010, which is determined by the Presidential Decree.
(2) Retirement pension rules



 
 

If a workplace adopts the retirement pension system, it should prepare retirement pension rules and report them to the Minister of Labor after obtaining consent from a workers’ representative.
 
* If its employment rules contain retirement pension rules, it may be exempted from the obligation to separately prepare retirement pension rules.
 
Preparing retirement pension rules means designing a retirement pension plan for an individual workplace.- Therefore, retirement pension rules should contain all the things required by law. The rules whose level is above what is required by law can be decided by the employer and workers at their discretion.
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