ESSENTIAL HR UPDATE New Developments in Employee Benefits and Labo u r Law

1. ESSENTIAL HR UPDATENew Developments in Employee Benefits and Labour Law Wednesday, November 24th, 2004 Warsaw, Poland Pension Reform and its Legal Consequences “Practical Impact of the New Law” AGNIESZKA BINIEDA CMS CAMERON McKENNA, Warsaw Email: agnb@cmck.com Phone: +48-22-520 5662

2. The new regulations regarding ‘third-pillar’ pension saving schemes • Act of 20th April 2004 on Individual Pension Accounts (IPA) – entered into force on 1stSeptember 2004 • Act of 20th April 2004 on Employee Pension Programmes (EPP) – entered into force on 1stJune 2004 (some provisions on 1stSeptember 2004)

3. Advantages of the new IPAs and EPPs • Some of the advantages of the new IPAs and EPPs include: • profitability: possibility of gathering pension capital on an individual account, giving the prospect of higher pensions • economy: capital accrual free of tax on interest (the Belka tax) • flexibility: possibility of transferring the gathered capital from IPA to EPP without any adverse tax effects, and vice versa

4. Conditions for establishing an EPP • an EPP may be established if at least half of the employees (or a third of the employees where the employer employs more than 500 employees) has worked for a given employer for at least three months • all employees, i.e. persons working for a given employer under any kind of employment contract, or appointed as a member of the mangement board for example, have the right toparticipate inan EPP, but not people working under agency or freelance contracts • only one EPP at a given employer is allowed, with minor exceptions (e.g. For threeyear after a merger of employers with EPPs)

5. Allowed legal forms of EPP • a pension fund • an agreement for the employer contributing employees’ contributions to an investment fund • an agreement of the employees’ group life insurance with an insurance capital fund, concluded with an insurance company

6. Calculating the contributions • The obligatory contributions can be calculated: • as an equal per cent of each employee’s remuneration • as an equal quote from each employee • as an equal per cent of each employee’s remuneration, with an upper quote limit • However,the contributions cannot in any case exceed 7% of each employee’s remuneration. • In addition, each employee may individually pay voluntary contributions of up to450% of the average salary (this year approx. PLN 10,300).

7. Establishing an EPP (I) • concluding a preliminary agreement with the financial institution, or drafting a statute of a pension society and pension fund • concluding an agreement between the employer and employees’ representatives, or representatives of several employers and representatives of their employees

8. Establishing an EPP (II) • concluding an agreement with a financial institution (e.g. a bank or an investment fund) or creating a pension society and a pension fund • registering the EPP with the Commission for Supervision over Insurance and Pension Funds (KNUiFE)

9. Obligations of the employer (I) • to finance, duly calculate and pay the obligatory and voluntary contributions – the contributions are deducted from the remuneration which is the basis for calculating obligatory social insurance contributions • to provide the employees with any important information regarding the EPP, and to duly update the information

10. Obligations of the employer (II) • to register the EPP with the Commission for Supervision over Insurance and Pension Funds (KNUiFE), and to register any changes in the information entered into the register • to provide KNUiFE with periodic reports

11. Suspension of an EPP • The employer may suspend payments to the EPP, or limit the contributions paid to the EPP: • for 3 months • for 6 months if the agreement with the employees so provides • due to exceptional economic situation of the employer, and upon an arangement with the employees’ representatives – fora longer period, however no longer than 24 months during any consecutive 48 months

12. Liquidation of an EPP • The employer can liquidate an EPP: • upon mutual consent of the employer and the employees’ representatives • due to certain circumstances specified in the Act on EPP, e.g.: • termination the EPP agreement by the insurance company managing the EPP • liquidation of the insurance company • liquidation or insolvency of the employer

13. Intertemporary provisions (I) • employers are obliged to change any existing non-EPP group insurance savings scheme into EPP until 31/12/2004 – under a threat of losing the right to reduce social insurance contributions paid for their employees • employers are obliged to adjust the existing EPPs, established under the provisions of the previous Act on the Employees Pension Programmes, to provisions of the new act by31/12/2005

14. Intertemporary provisions (II) • contributions of agents and freelancers cannot be gathered after 31/12/2007 – the contributions gathered to that date will remain on the account until they are drawn by the agent or freelancer • employers are obliged to adjust the amount of contributions paid to an insurance capital fund by 31/12/2008

15. THANK YOU • Any questions?