In South Korea, employer-sponsored retirement plans supplement the pay-as-you-go National Pension Scheme, the basic social security (old-age, survivors, and disability) safety net. When first introduced in 1961, employer plans covered companies with 30 or more employees and provided mandatory severance payments, which consisted of lump-sum benefits of at least 1-month average pay per year of service. Coverage was gradually extended to include employers with five or more employees. Additionally under the 2005 Employee Benefit Retirement Security Act employers are encouraged to adopt a tax-advantaged defined benefit plan or defined contribution plan, or convert their existing mandatory severance plan (with the consent of employees) to one of these pension plan designs. Alternatively, employers with fewer than ten employees may choose to make tax-favored contributions on behalf of their employees to an individual retirement account.
Recently, the South Korean government approved a law extending the mandatory employer-sponsored retirement benefit system to small employers, including all those with four or fewer employees. As a consequence, starting December 1, 2010 and until December 31, 2012, small employers will pay 50 percent of the contribution rate required of larger employers (a minimum of 8.33% of the employee's annual salary). Starting January 2013 small employers contribution will reach 100% of same contribution rate.
Currently, employers with five or more employees must establish some type of tax-favored retirement plan. To encourage small companies to establish pension plans rather than the more traditional severance pay plans (offering lump-sum payments at retirement), the Workers' Compensation and Welfare Service was designated as a low-commission pension. According to projections by the Korea International Labor Foundation, an estimated 1.5 million workers with a minimum of one year of service in over 900 thousand companies would be affected by the policy change.
Sources: IGP Country Profile: The Republic of Korea, Samsung Life Insurance, 2010; "Korean Retirement Benefit Scheme to be Extended to Workplaces with Four Workers or Fewer on 1 December," Select News, July 5, 2010; Republic of Korea, 2010, IBIS eVisor Country Manual, July 29, 2010; "Retirement Benefit System to Cover All the Workplaces from December 1, 2010," Korea International Labour Foundation, September 16, 2010; "South Korea's Cabinet Approves Change Requiring All Employers to Provide Retirement Benefits," Select News, September 29, 2010.