What the employee choice arrangement means for employees

Cynthia Chung
Partner, Corporate Commercial Group
[email protected]

The Employee Choice Arrangement (ECA) came into effect on November 1 2012. It allows employees to transfer certain of their accrued benefits into another mandatory provident fund (MPF) scheme of their choice.

Before the ECA, the accrued benefits derived from both the employer and employee mandatory contributions made during current employment had to stay in the mandatory provident fund (MPF) scheme of the employer's choice before cessation of employment. If an employee has transferred accrued benefits derived from mandatory contributions relating to their former employment or self-employment to the contribution account under their current employment, such mandatory contributions also cannot be transferred out.

For the voluntary employer and employee contributions derived from current or former employment, their transferability is subject to the governing rules of the relevant MPF scheme.

With the ECA, the employees will be allowed, but are not obliged, to transfer the accrued benefits derived from the employee mandatory contributions in their contribution account made during current employment to another MPF scheme of the employees' own choice. The transfer can be carried out on a lump sum basis at least once every calendar year.

In addition, if the employees have transferred accrued benefits derived from mandatory contributions relating to their former employment(s) or self-employment(s) to the contribution account under current employment, such mandatory contributions can also be transferred to another MPF scheme of their own choice in a lump sum at any time.

The accrued benefits which have been transferred out will be kept in the employees' own personal account in the MPF scheme of their choice and can be transferred at any time.

There will be no change in terms of the transferability of employer mandatory contributions made during current employment and also voluntary contributions from current or former employment or self-employment.

Employee obligations

With the ECA, the employees will be given the additional rights and flexibility to transfer their accrued benefits to the MPF scheme of their own choice. They are not obliged to do so and in fact, before they make any decision in relation to transfer out their accrued benefits, they should consider carefully all the relevant factors and seek professional advice, if necessary. The key factors that the employees will need to consider include the following:

• Services of existing MPF scheme
• Fees and charges
• Investment performance
• Choices and risk profiles of investment funds
• Employee's own personal circumstances

In case the employee has decided to transfer the accrued benefits to an MPF scheme of their own choice, they would be responsible for sending a completed written notice to the new trustee of the scheme. The whole transfer process will take around six to eight weeks and the employee should be reminded that fund prices may fluctuate during the processing period. The employee is not required to inform the current employer of the transfer and the employer will not be involved in the transfer process.

Employer's role

The ECA has not provided additional legal rights nor has it imposed additional legal obligations on the employers. The employers will not be required to be involved in the transfer process nor will they be required to contact the new trustee which the employees have chosen.

From the employer's perspective, the employee mandatory contributions from current employment will continue to be made to the employer's MPF scheme and there will be no change to that. In case a transfer of employee mandatory contributions from current employment has been made and the employee wishes to transfer accrued benefits from subsequent employee mandatory contributions to another MPF scheme, they have to make another election in the next calendar year (or later in the same calendar year if the governing rules of the original scheme allow frequent transfers).

There will also be no change in the offsetting arrangement for statutory severance or long service payment. Any offsetting will be made from the accrued benefits derived from employer mandatory contributions made under current employment and this explains why those accrued benefits will not be transferable under the ECA and they must be kept in the contribution account of the employer's MPF scheme before cessation of employment.

Even though the employer will not be involved in the transfer process, the employers should be prepared that employees may approach them on any enquiries regarding the ECA. Employers should be equipped to answer enquiries from the employees and give them relevant information where possible and feasible to do so. The employer should also provide the employees with the information for completing the transfer election form in case the employee is in doubt.

Employers should review and communicate with their existing MPF service provider to understand if the transfers have been running smoothly for their employees and if there is any way the employers can help the employees in achieving their purposes.