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Royal Decree 1588/1999 of 15 October approved the Regulation on the implementation of pension commitments towards employees and beneficiaries, with the aim of complying with Article 8 of Directive 80/987/EEC on the protection of employees in the event of employer insolvency. This legislation gave rise to Law 30/1995 of 8 November, which, through its eleventh additional provision (paragraph 19) and its fourteenth, fifteenth and sixteenth transitional provisions, set out the framework for companies' pension commitments to their employees.
This Regulation requires companies to guarantee their employees the fulfilment of commitments entered into under collective bargaining agreement, in respect of Retirement, Disability or Death, through the arrangement of Pension Plans or Insurance Contracts.
The Regulation establishes that, among other objectives, externalising pension commitments off companies' balance sheets should allow those companies to free up resources and focus on their core activities, which may translate into greater competitiveness. Furthermore, transferring the management of the assets underlying these commitments to entities specialised in financial management and investment may represent a lower cost for the company when it comes to financing and meeting a significant portion of its employment-related obligations.
The deadline for companies to bring their pension commitments to employees into line with the First Additional Provision of Law 8/1987 of 8 June on the Regulation of Pension Plans and Funds, already extended to 16 November 2002 by the Twenty-Fifth Additional Provision of Law 14/2000 of 29 December on Tax, Administrative and Social Order Measures, is further extended until 31 December 2004 for the integration into jointly promoted occupational pension plans of those commitments established under collective bargaining agreement of supra-company scope, linked to the employee's continued employment with the company or sector until retirement, which, whether referred to as 'retirement bonuses' or by any other name, consist of a one-off payment made at the point of retirement.
For the purposes set out in the preceding paragraph, employer and employee representatives at supra-company level may promote one or more jointly promoted pension plans, into which companies bound by the relevant agreement may be incorporated, without prejudice to any necessary adaptations that must be agreed in order to align the structure of those commitments with the fundamental principles of pension plans established under pension plan regulations.
WHAT ARE PENSION COMMITMENTS?
Pension commitments are obligations aimed at granting monetary benefits or making contributions, linked to the following contingencies:
· Retirement or equivalent situations, including retirement bonuses
· Total and Permanent Occupational Disability for the employee's usual profession, or Absolute and Permanent Disability for all types of work, and severe disability.
· Death of the employee where this may give rise to entitlements to widowhood or orphan's benefits, or benefits in favour of other heirs or designated persons.
These commitments arise from a legal or contractual obligation set out in most collective agreements, or in any other pact or agreement between the company and its employees. In the case of social welfare mutual societies or labour foundations, they are those set out in the articles of incorporation, by-laws or regulations.
WHICH COMPANIES MUST EXTERNALISE THEIR COMMITMENTS?
Under Article 5 of the Regulations, the following are considered companies required to externalise their commitments:
Legal entities of any nature that hold Spanish nationality and whose registered address or principal establishment is located in Spanish territory.
Natural persons, joint ownership arrangements (comunidades de bienes), and other entities that, even without legal personality, are capable of assuming pension commitments towards their employees.
WHO IS THE AFFECTED PERSONNEL?
Externalisation applies to commitments assumed by companies towards their active workforce. For the purposes of the Regulations, this encompasses any natural person who provides paid services on behalf of the company by virtue of an employment relationship falling within the scope of the Workers' Statute, including special employment relationships.
VALID INSTRUMENTS FOR EXTERNALISATION
The Royal Decree, in Article 2, places an obligation on companies to fund their commitments through insurance contracts, occupational pension plans, or a combination of both instruments.
The Royal Decree further provides that, once commitments have been externalised in accordance with its provisions, the obligation and liability of companies is limited exclusively to what has been assumed under those insurance contracts and pension plans.
It is worth noting in this regard that the company must incorporate into the chosen externalisation instrument all commitments assumed and covered by the Royal Decree. The company remains responsible to the employee for adapting the terms of the Insurance Contract or Pension Plan to reflect any changes to the commitments that may have arisen under collective agreements entered into after the original formalisation of those instruments.
PENALTIES FOR NON-COMPLIANCE WITH THE REGULATIONS
· This is classified as a very serious labour infringement.
· Fines range from €3,005.06 to €90,151.82.
· The penalty is assessed according to the degree of negligence, intent, fraud, non-compliance, prior warnings from the Labour Inspectorate, number of employees and beneficiaries, harm caused, and the company's turnover.
· Maximum level (from €48,080.97 to €90,151.82) applies where there is ongoing and persistent non-compliance.
· In cases of repeat infringement within 365 days: the fine may be doubled, up to a maximum of €90,151.82.
HOW OUR FIRM CAN ASSIST YOU
Our firm can answer any legal questions you may have on this matter, direct you to the insurance company we believe is best placed to offer you this type of policy, and provide information on the list of collective bargaining agreements that include retirement benefits or long-service awards. Please do not hesitate to get in touch with us.
