What is the impact of Covid-19 on the accrual of occupational pension rights and on death coverage? The Law of 7 May 2020 obliges employers to review and adapt their strategy accordingly and communicate to employees their continued entitlement (or not) to those benefits.
1. ACCRUAL OF PENSION RIGHTS
In our previous article, we mentioned that the Government was working on a solution for all employees whose employment contracts are suspended while they’re unemployed due to force majeure. Suspending employment contracts during this period has included suspending the accrual of pension rights and risk coverage (including death coverage).
Under a Defined Contribution plan, this means that the employer no longer pays contributions while the employment contract is suspended.
Under a Defined Benefit plan, this means that the period of unemployment will not be considered when calculating pension rights when an employee retires.
On 18 May 2020, the legislative proposal was published in the Belgian State Gazette. The Law of 7 May 2020 on exceptional measures during the Covid-19 pandemic on pensions, supplementary pensions and other additional social security benefits deals with the issue but does not fully resolve it.
The law entered into force retroactively on 13 March 2020 and will cease to be effective on 30 September 2020.
2. LAW OF 7 MAY 2020
The scope of the above-mentioned law covers employees who are temporarily unemployed due to Covid-19 and whose period of unemployment (and thus inactivity) is not considered equivalent to a period of activity according to the pension plan rules. Our research shows that pension plan rules are unlikely to consider temporary unemployment due to force majeure as equivalent to a period of activity.
The law now stipulates that the accrual of pension rights and risk coverage will not be suspended during temporary unemployment. This means that, in principle, the employer will continue to pay the contributions and the employee will benefit from coverage.
However, the employer can decide differently, opting instead to suspend the accrual of pension rights and risk coverage, except for death coverage . Death coverage is guaranteed until 30 June 2020, unless the pandemic and therefore temporary unemployment lasts longer. In this case, the period of death coverage could be extended by a Royal Decree. The employer must communicate their decision to affected employees.
3. PENSION PLAN RULES
Therefore, it is essential to review pension plan rules, for two reasons.
First, do the pension plan rules guarantee the accrual of pension rights and risk coverage during the period of inactivity? If not, as is likely, the law presumes a continuation. If a company intends to save costs, it should take action and change the plan rules to prevent the continuation.
Second, is the inability to work due to illness considered as equivalent to a period of activity? Employers will have to decide whether or not there should be coverage during this period, as this is not part of the legislative change.
The new law gives some relief to employees in these difficult times, but the final decision on pension rights and risk coverage (apart from death coverage ) must be taken by the employer.
Finally, note that, irrespective of any changes made by the company/employer, the pension plan rules must be amended to comply with the new legislation. The changes to the pension plan rules must be implemented before 31 December 2021.
4. NEXT STEPS
We advise communicating your intentions to your employees and reviewing and amending the pension plan rules using an annex to the rules.
Elke Duden, Partner, Antwerp
Nathalie Montoisy, Junior Associate, Antwerp
