The law passed on 18 December 2015 to ensure the sustainability and social character of the supplementary pensions and to strengthen the supplementary character with regard to the retirement pensions was published in the Belgian Official Gazette of 24 December 2015.
Now that these texts have been approved, we will take a closer look at the changes that have been enacted. We will focus on the measures that apply to employees and their supplementary pension schemes. The impact on self-employed persons (executives) is roughly the same.
If payments into the plan are made by the employee or by the employer within the framework of a Defined Contribution plan (DC plan) or a cash balance plan, the employer is legally required to guarantee a minimum return.
Until 1 January 2016, this guaranteed return was equal to a fixed percentage, namely 3.25% of the payments by the employer and 3.75% of the payments by the employee.
Since 1 January 2016, the guaranteed return varies per year. This is determined on the basis of the average of the 10-year Belgian OLOs multiplied by 65%; this percentage can be adjusted in future. The result of this calculation may not be less than 1.75% and may not exceed 3.75%.
In concrete terms, as of 1 January 2016, the guaranteed return for contributions by employers as well as employees has been reduced to 1.75%.
In case of adjustments to the guaranteed return, the legislator has come up with two methods to protect the established reserves in the long term. In addition to the existing vertical method (savings account method), which can be used for pension plans that are structured in practice within a pension fund or Tak/Branch 23 group insurance, there is also the horizontal method for pension plans that rely on a Tak/Branch 21 group insurance.
As of 1 January 2016, persons who took part in a supplementary pension scheme will be given an additional choice of options for the acquired reserves if the employment contract is terminated. At that point, they can choose to have the acquired reserves remain with the pension institution of the former employer with the addition of death benefit coverage that is in line with the amount of the acquired reserves.
The basic rule is that the supplementary pension scheme pays the benefit on the date that the insured person reaches the legal (early) retirement age.
Simultaneously with the adjustments made to the legal retirement age, transitional arrangements apply to those who have at least reached the age of 55 in 2016. A transitional measure also applies to persons who benefit from an SWT framework (framework for unemployment with company supplement, previously referred to as the bridging pension) registered before 1 October 2015. They can still receive benefits from the age of 60 if the pension regulations provided for such benefits.
Some pension plans grant participants favourable facilities if their employment contract is terminated before the legal retirement age. These favourable provisions (anticipation rules) will become completely null and void except for plan members who are 55 years or older in 2016.
The logical result of this is that the retirement age specified in new pension regulations can no longer be less than the legal retirement age. This principle also applies to changes in the retirement age for existing pension plans and for new employment contracts as of 1 January 2019.
Employees who earn extra income on the side after their legal retirement age can no longer be covered by a pension entitlement.
If your company is subject to the IFRS (IAS19/FAS87), you may need to take a different approach to your Defined Contribution plans as a result of the new legislation with regard to the minimum guaranteed return for the employer.