Government to mandate external funding of severance pay at workplaces with 100 or more employees

A mandate requiring severance pay to be set aside at financial institutions outside the company will be pursued from 2028, starting with workplaces with 100 or more employees. The government aims to protect workers’ right to receive severance pay while introducing a fund-type retirement pension to lift returns through professional management.

On the 28th, the government discussed a “Plan to Strengthen Retirement Pension Functions” containing these measures at a joint meeting of the Economy-Related Ministers’ Meeting and the Science and Technology-Related Ministers’ Meeting held at the Government Complex Seoul. It is a detailed refinement of the “Plan to Strengthen Retirement Pension Functions” that labor, management and the government drafted together on the basis of the labor-management-government joint declaration this past February.

Under the plan, the government will use next year as a preparation period and then apply the external funding obligation first to workplaces with 100 or more employees in 2028. It then plans to widen the scope step by step and ultimately apply it to all workplaces. By having the funds for severance pay entrusted to outside financial institutions and the like, the government aims to ensure workers do not lose their severance pay even if a company goes bankrupt or falls into financial difficulty.

Specific plans for introducing and operating the fund-type retirement pension will be prepared separately. The plan will raise returns through professional asset management while also strengthening trustee responsibility and the management and supervision system. At the stages of authorization, management and supervision, the Ministry of Employment and Labor, the lead ministry, and financial authorities will expand cooperation.

The criteria for evaluating retirement pension providers will shift to focus on annuitization and returns. The timing of the default option notification will also be moved up from four weeks after maturity to two weeks before maturity, shortening the period in which funds sit idle without being managed.