Employer Action Code: Act
After much debate, the Senate recently voted in favor of proposals for the Pension Deal. The new legislation will take effect July 1, 2023, and all occupational pension plans must be amended to comply with the new rules by January 1, 2028 (one year later than previously proposed).
On Wednesday, June 14, WTW will organize three webcasts for employers on the impact of the changes. The third one, from 4:00 p.m. to 4:45 p.m. CET, will be in English. Register here to attend.
- The core changes are twofold:
- All future retirement plan accruals must be on a defined contribution (DC) basis, with an option for pension funds to transition past service defined benefit (DB) type accruals without member consent. Most pension funds currently have a DB type design; going forward, pension fund accruals will depend entirely on contributions and net investment returns.
- The value of the annual pension accrual (expressed as a percentage of pensionable pay) must be independent of age. This change will have negative consequences for certain age groups, which may be a reason for providing some form of compensation to affected participants. Employers that already provide a DC plan or an insured DB plan have the option to maintain age-dependent accruals (and therefore also contribution rates) for current participants, but new plan entrants must be on a flat rate basis.
- The changes will also, among other things, affect pensions payable to dependents and result in pension payment amounts being variable by default (i.e., the payment amount after retirement is adjusted upward or downward annually).
Employers, in agreement with employee representatives, must set up a transition plan for the move to the new regime (except for those employers that decide to maintain age-dependent contribution rates for current workers). The plan must include the employer’s considerations for the changes as well as numerical insights. The deadline for the transition plan is January 1, 2025, for pension funds and October 1, 2026, for other plans.