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Mandatory external funding of retirement pensions is being pursued, but ensuring retirement benefits for employees with less than one year of service and those working very short hours remains an issue for further discussion. / AI-generated image

South Korea has set a timetable to make retirement pension plans mandatory for all workplaces, but ensuring retirement benefits for employees with less than one year of continuous service or fewer than 15 scheduled working hours per week remains unresolved. While mandatory external funding will be introduced according to workplace size, expanding eligibility to more workers has been left to further discussions among labor, management and the government.

According to the Ministry of Employment and Labor's plan to strengthen the retirement pension system, announced on Oct. 29, external funding of retirement benefits will become mandatory in stages, beginning with workplaces employing 100 or more people in 2028 and expanding to all workplaces by 2030. However, neither a specific implementation date nor a method has been finalized for extending coverage to employees with less than one year of service or those working very short hours.

Under the current retirement benefit system, employees must have worked continuously for at least one year and have average scheduled working hours of at least 15 hours per week over a four-week period. Even if an employer introduces a retirement pension plan, workers who do not meet these requirements are not entitled to employer-funded retirement benefits.

The latest plan does not specify how much the one-year service requirement should be reduced or how retirement benefits should apply to workers whose scheduled working hours are less than 15 hours per week. Even when workplaces comply with mandatory external funding requirements, they will not automatically become obligated to set aside retirement benefits for these workers.

The ministry is examining how retirement benefits are currently provided to workers with very short hours or less than one year of service, as well as the potential financial burden on employers and the impact on the labor market of expanding coverage. The Labor Relations System Development Committee under the Economic, Social and Labor Council has also been discussing the issue since June.

Proposals include reducing the minimum service requirement from one year to three or six months and calculating retirement benefits in proportion to the length of service. Expanding eligibility would allow workers employed for shorter periods to receive retirement benefits corresponding to their time worked, but employers would face additional costs for benefits they are not currently required to provide.

"There have been various calls to reduce the service requirement to six or three months or calculate benefits on a pro rata basis," said Nam Sung-wook, director of the Retirement Pension Welfare Division at the Ministry of Employment and Labor. "Discussions among labor, management and the government are continuing, and we will announce the outcome once an agreement is reached between labor and management."

For workers in nonstandard employment arrangements, including independent contractors and platform workers, expanded access to retirement pension plans does not necessarily mean guaranteed retirement benefits. Since July, these workers have been allowed to enroll in individual retirement pension (IRP) accounts under the Blue Seed retirement pension fund for SMEs, but employers have not been required to make retirement benefit contributions on their behalf. The government is also seeking to allocate budget funds for matching contributions for these workers and part-time employees, although the amount of support and implementation date have yet to be determined.

The risk of unpaid retirement benefits for previous periods of service also remains. Mandatory external funding will apply only to periods of service beginning after the requirement takes effect at each workplace. Employers will not be required to externally fund benefits accrued before that date. Although employers will remain obligated to pay retirement benefits for earlier periods of service, the new requirement will not eliminate the risk of nonpayment if a company loses its ability to pay.

"Expanding retirement benefit coverage would place a considerable burden on employers, but it is also an extremely important issue for workers who are currently excluded," said Lee Hyun-ok, director-general of the Labor Policy Office at the ministry. "Given the sharply conflicting interests of labor and management, we plan to seek solutions through social dialogue."

                                                                                                           Kim Nam-hyung