Amid Concerns Over Retirement Pension Mandate, Government Says: "No Retroactive Funding for Existing Severance Benefits"

Phased rollout beginning in 2030 for businesses with fewer than 10 employees
12.2 billion won in matching support and loan cost assistance for early adopters
Unpaid severance totals 822.9 billion won a year... Government stresses need to protect workers' right to benefits

The government said it would minimize the burden on micro and small and medium-sized enterprises (SMEs) as it moves to require employers to set aside retirement benefits externally to prevent unpaid severance. Businesses with fewer than 10 employees will be subject to the requirement in phases starting in 2030, and retirement benefits accrued for employees’ existing service periods will not have to be funded retroactively. The government will also provide financial and lending support to businesses that adopt the system early. In response to concerns that the costs could weigh heavily on small businesses, the government is seeking to build support by emphasizing a phased rollout and assistance measures.

An apartment construction site where work has been halted for 10 months due to unpaid workers' wages. File photo by The Asia Business Daily.

On October 30, the government outlined the need to require external funding of retirement benefits and measures to ease the burden on SMEs.

According to the government, unpaid severance totaled 822.9 billion won at the end of last year, accounting for 41.1% of all unpaid wages. Unpaid severance affects more than 260,000 workers each year. Under the current severance system, workers may not receive their severance if their employer faces financial difficulties or goes bankrupt when they leave their jobs.

The government stressed that requiring external funding would not impose a new obligation on employers to pay retirement benefits. Rather, it would require them to set aside funds externally during employees’ service periods to cover benefits they are already obligated to pay. The aim is to protect workers’ right to receive those benefits by having companies place the funds with external financial institutions instead of holding them internally, regardless of their business circumstances.

The government plans to give small businesses sufficient time to prepare. The requirement to introduce a retirement pension system will be phased in according to business size: in 2028 for businesses with 100 or more employees, in 2029 for those with 10 to 99 employees, and in 2030 for those with fewer than 10 employees. In particular, retirement benefits accrued for service periods before the requirement takes effect will not have to be funded externally retroactively. The requirement will apply only to service periods after it takes effect, so businesses will not have to set aside the full amount of benefits accrued to date all at once, the government said.

A government survey of 1,500 businesses that had not introduced a retirement pension system found that 90.3% of respondents had fewer than 10 employees. Of those, 80.1% said they could prepare to introduce the system within three years. The government said these findings show that claims that the preparation period for small businesses is excessively short are overstated.

The government has also prepared financial and lending support. The government’s 2027 budget proposal includes 12.2 billion won in new funding: 6 billion won for a program matching contributions by businesses that adopt a retirement pension system early, and 6.2 billion won to cover the cost of loans for operating funds. The government also plans to reduce the costs of operating the system by applying special fee provisions for retirement pensions at micro and SMEs and simplifying the requirement to file plan rules.

The government stressed that the measures are the result of a social agreement reached through discussions among labor, management and the government, from surveying business conditions to drawing up the mandate. It plans to consult with labor, management and the National Assembly to pursue amendments to the Act on the Guarantee of Employees’ Retirement Benefits, and to continue monitoring the burden on small businesses on the ground.

The government also plans to strengthen the operational infrastructure, including staffing and systems, in preparation for expanding eligibility for the Small and Medium Business Retirement Pension Fund, “Pureun Ssiat,” and automatically enrolling businesses that have not introduced a retirement pension system once external funding becomes mandatory.

This content was produced with the assistance of AI translation services.