LegCo Paper No. CB(1)1587/96-97
(These minutes have been seen
by the Administration)
Ref: CB1/HS/1/96/2

Subcommittee on Mandatory Provident Fund System

Minutes of Meeting held on Monday, 20 January 1997, at 8:30 a.m. in Conference Room A of the Legislative Council Building

Members present :

    Hon Ronald ARCULLI, OBE, JP (Chairman)
    Hon Christine LOH Kung-wai
    Hon LEE Cheuk-yan
    Hon CHAN Wing-chan
    Hon CHAN Yuen-han
    Hon Paul CHENG Ming-fun
    Hon MOK Ying-fan
    Hon NGAN Kam-chuen
    Hon SIN Chung-kai

Members absent :

    Dr Hon LAW Cheung-kwok (Deputy Chairman)
    Dr HUANG Chen-ya, MBE
    Hon James TIEN Pei-chun, OBE, JP
    Hon LAW Chi-kwong

Public officers attending :

    Mrs Pamela TAN
    Mandatory Provident Fund Office

    Mr Raymond TAM
    Assistant Director
    Regulatory Standards

    Ms Hendena YU
    Senior Manager
    ORSO Interface

Clerk in attendance :

    Miss Polly YEUNG
    Chief Assistant Secretary (1)3

Staff in attendance :

    Ms Connie SZETO
    Senior Assistant Secretary (1)5

I Meeting with the Administration

ORSO interface arrangements

Disclosure requirements in connection with employees’ option

(LegCo No. CB(1)708/96-97(01))

Mr SIN Chung-kai was concerned that employers of ORSO schemes might seek to vary the governing rules of their schemes to avoid providing employees with the required information to facilitate the latter in making a choice between the ORSO scheme and MPF coverage. Mr CHAN Wing-chan doubted whether employers in general would understand their obligation to disclose the relevant scheme information and were capable of providing detailed information to their employees. The Chairman also enquired about the right of employees to make claims against the employer if they subsequently discovered that they had opted for a scheme providing less favourable benefits due to inadequate or inaccurate information provided by the employer.

2. Responding to these concerns, the Assistant Director/Regulatory Standards (AD/RS) explained that the information disclosure requirements would be conditions for exemption from MPF requirements. No exemption would be granted to ORSO schemes which contained provisions inhibiting disclosure of the necessary scheme information to facilitate employees in making an informed choice. To remind employers of their obligation to provide information and to make employees aware of their right to the access of information, AD/RS said that the MPF Schemes Authority (MPFSA) would organise educational and promotional activities and offer enquiry assistance to employers and employees. To facilitate disclosure of comparative information, the MPFSA would issue relevant guidelines and an employer would be deemed to have fulfilled his duty if he had adhered to the disclosure guidelines. He also explained that the MPF scheme rules were quite standardised and with the help of various service providers, an employer should not have great difficulty in disseminating the required information to employees. It should also be noted that when applying for registration under the ORSO, many employers had submitted statements certifying that all essential information had been clearly documented. Regarding whether the ORSO or the MPF scheme would offer higher benefits for an employee in the long run, AD/RS advised that this would depend on many variables including the benefit structure of the schemes, the rate of contribution and investment return of the fund.

3. In reply to members’ enquiries about the proposed time frame within which employees must exercise their option, AD/RS informed the meeting that a period of 20 days was proposed beyond which the default option was MPF coverage. Relevant information should be made available to employees 50 days prior to the deadline. Where an employee had opted for the existing ORSO scheme, he could only transfer to a MPF scheme subsequently with the consent of the employer or upon reduction of future benefits under the existing scheme.

4. Miss CHAN Yuen-han raised concerns about existing provisions of the ORSO permitting employers to close membership of an ORSO scheme to new employees and to withhold current employees’ accrued benefits under the scheme in the event of rightful dismissal for cause. In this connection, Mr SIN Chung-kai considered that employers’ right to withhold benefits on dismissal should be restricted so as to prevent abuse.

On-going requirements

(LegCo Paper No. CB(1)708/96-97 (02))

5. Noting that employers of ORSO schemes had the right to reduce future benefits of their schemes, some members were concerned that following implementation of the MPF system, employers with existing ORSO schemes providing better terms than the MPF requirements would seek to reduce such scheme benefits. Miss CHAN Yuen-han enquired about overseas experience in dealing with such cases.

6. In response, the Director of MPF Office (D/MPFO) and AD/RS pointed out that ORSO schemes were set up voluntarily by employers. Although reduction of future benefits by employers was permissible, it had to be subject to provisions of the employment contract and the relevant scheme rules. Moreover, the antecedent rights of scheme members must not be affected. However, in order to protect employees who had opted to remain in the ORSO scheme from subsequent unilateral variation of scheme rules by employers, they would be given another chance to opt for MPF coverage upon reduction of future benefits. There were very few cases of reduction of benefits among existing ORSO schemes. The Administration believed that employers of ORSO schemes offering higher benefits than MPF requirements would not seek to reduce existing benefits in view of the need to preserve harmonious employer-employee relationship and to remain competitive. As regards foreign experience, AD/RS remarked that there had been a few cases in which the employers and the trade unions mutually agreed to a reduction of future benefits in times of the employer’s financial difficulty or economic downturn.

7. The Chairman requested the Administration to take note of members’ concerns and to monitor closely possible cases of reduction of benefits of existing ORSO schemes after implementation of the MPFSO.

MPFO 8. Mr SIN Chung-kai opined that since the circumstances of individual employees differed, any variation to scheme arrangements might have different impact on individual employees. He therefore suggested that scheme members should be allowed to opt between the existing ORSO scheme or MPF coverage whenever there was a change to the level of benefits. In response, D/MPFO explained that the Administration’s proposal would eliminate unnecessary administrative work as it was expected that employees would only consider opting for the MPF system when there was reduction in benefits of the existing ORSO scheme. Nevertheless, the Administration would examine the feasibility of Mr SIN’s proposal.

9. On a member’s enquiry about the definition of ‘reduction of scheme benefits’ and the eligibility of employees for making the option, AD/RS confirmed that any change in the scheme features leading to a lower level of benefits for employees would constitute a reduction in benefits and under such circumstances, all members of the scheme would be given a chance to opt for MPF coverage.

Impact on employers and employees

(LegCo No. CB(1) 708/96-97(03))

MPFO10. Mr LEE Cheuk-yan was concerned that an employer would wilfully coerce or mislead an employee to opt-out or remain in the existing ORSO scheme for various reasons such as for reducing costs or administrative expenses. He suggested that such acts should amount to a criminal offence in law. Although D/MPFO commented that there was little likelihood for such actions on the part of employers, the Administration would consult the Attorney General’s Chambers on Mr LEE’s proposal.

11. To enhance protection for employees, Mr LEE Cheuk-yan reiterated his suggestion of taking the implementation date of the MPF system as a cut-off date whereby an employer could only withhold that part of the employee’s benefits accrued up to the cut-off date if the employee was rightfully dismissed for cause. Benefits accrued after the cut-off date should be portable and preserved in accordance with the MPF requirements.

12. Mr SIN Chung-kai was of the view that since benefits under a MPF scheme could normally only be withdrawn at the age of 65, Mr LEE’s suggestion might not be preferred by employees who would otherwise be able to withdraw their lump sum entitlement at an earlier age under their ORSO scheme. D/MPFO added that Mr LEE’s proposal might upset the existing contractual relationship between employers and employees in respect of their obligations and rights under the ORSO schemes.

Options available for employers

(LegCo Paper CB(1)708/96-97(04))

13. As a variety of options were available under the ORSO interface arrangements, Miss CHAN Yuen-han opined that an appropriate mechanism should be devised to enable employers and employees to discuss and negotiate mutually acceptable arrangements. She suggested that a proper collective bargaining system would be effective for such purposes. D/MPFO however, informed members that consultative committees comprising employee representatives were in place under the ORSO system to discuss scheme matters of mutual concern. She considered that it would be more appropriate to strengthen the role of these committees rather than pursuing a collective bargaining system which would raise wider contentious issues outside the ambit of the proposed MPF system.

II Any other business

14. Members agreed to hold the next two meetings on 27 January 1997 at 8:30 am and on 31 January 1997 at 10:45 am.

15. The meeting ended at 10:30 am.

Legislative Council Secretariat

16 May 1997

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