LegCo Subcommittee on MPF System
Information Note
ORSO Interface Arrangements -
Impact on Employers and Employees



Purpose

This paper describes the impact of ORSO interface arrangements on employers and employees of ORSO schemes.

Employers Consideration

2. It is up to the employers to decide whether they want to seek exemptions for their ORSO schemes or not. ORSO schemes are set up by the employers on a voluntary basis, and the Ordinance allows employers to made changes to the scheme arrangements provided that, where the changes affect members’ accrued rights, consent is obtained from 90% of the members.

3. It is envisaged that these employers will need to take into consideration the following matters before they make a decision :

  1. Compare the benefit scale and/or contribution level under their existing scheme to the MPF requirements and anticipate how existing scheme members might choose between the two.
  2. Assess the cost implications, including administration cost and funding cost.
  3. Assess the employer and employee relations.

4. The options that are available to the employers are analyzed in the paper "ORSO Interface Arrangements - Options Available for Employers".

Impact on Employers

5. If an employer decided to seek exemption for the existing members only or for both the existing and new members of his ORSO scheme, the interface arrangements would have the following impact on him :

  1. Communication to employees

    The employer would need to disclose all the necessary information, which should include those disclosure requirements prescribed under the regulations, in order to enable the existing members or the new eligible employees to make an informed choice.

  2. Establish or participate in an MPF scheme and operate two schemes

    If any existing members or new eligible employees opt for MPF scheme, the employer would need to operate two schemes, i.e. the existing ORSO scheme and an MPF scheme.

  3. Modify ORSO schemes
    1. With respect to the requirements prescribed under the interface arrangements, such as the treatment of "opted-out" members and the preservation and portability requirements for new members, it is envisaged that modifications to the trust deed will be required.
    2. If the employer wants to admit new employees into the ORSO scheme, he would need to change the eligibility provisions under the ORSO scheme to less than 60 days if it is stated otherwise. The new employee would need to be a member of an MPF exempted scheme in order to be exempt from the requirement to make statutory MPF contributions after being employed for 60 days.

  4. Apply to MPFA for exemption

    The MPFA will need to be satisfied that all the requirements prescribed under the interface arrangements (such as employee’s right to opt, preservation and portability requirements on new members) are complied with before an exemption will be granted.

  5. Additional record keeping
    1. Members under the ORSO scheme will need to be differentiated between existing members and new members.
    2. Additional records would need to be kept or maintained for new members in order to perform the minimum MPF benefits calculation for preservation and portability purposes.

  6. Affect funding cost

    The impact on the total overall funding cost to the employers will depend on the following matters:

    1. whether additional non-mandatory contributions are offered under the MPF scheme and whether there is any vesting scale on such additional contributions;
    2. the number of existing members and new eligible employees who would opt for MPF schemes; and
    3. the benefit and/or contribution level offered under the ORSO scheme as compared to the contribution level offered under the MPF scheme.

Impact on Employees

6. Existing members are grandfathered under the proposal, i.e. exempt from all MPF requirements.

7. Both existing members and new eligible employees will have a one-off option to choose between the ORSO scheme and the MPF coverage.

8. It is envisaged that employees will take into consideration the following factors in assessing the potential risk and return under the two schemes when they make their choice :

  1. Salary
    1. Basic salary vs total cash income.
    2. Earning more or less than HK$20,000 (the salary cap prescribed under the MPF System).

  2. Age

    Those members closer to retirement age will probably choose to stay in ORSO schemes whereas young members with short years of service may opt for MPF coverage to benefit from the full and immediate vesting rules under the MPF System.

  3. Employee required contributions

    Employees choice will be affected by the level of employee contributions required under the two schemes. It is not uncommon under ORSO schemes that employees are not required to make any contributions.

  4. Intention to stay

    Employees will use their expected years of service to estimate which scheme will provide higher benefits to him. However, they need to take into account the risk of receiving lesser benefits under the ORSO scheme if they elected to join the ORSO scheme and then left employment earlier than expected.

Impact on Existing Employees

9. If an existing member opts to stay in the ORSO scheme :

  1. his accrued benefits and future benefits will not be affected at all; and
  2. he can receive all his benefits in cash lump sum upon leaving service.

10. If an existing member opts for MPF scheme :

  1. his pensionable service under the ORSO scheme will be frozen;
  2. he and his employer start to make contributions to the MPF scheme; and
  3. he can receive all his benefits accrued under the ORSO scheme in cash lump sum upon leaving service.

11. It is quite common that part-time and temporary employees are not eligible to join an ORSO scheme. Thus, for an existing employee who is not eligible to join an ORSO scheme, he would not have any choice but to join the MPF scheme.

Impact on New Employees

12. If a new employee who is eligible to join an ORSO scheme opts to join the ORSO scheme :

  1. his accrued benefits under the ORSO scheme up to the prescribed minimum MPF benefits will be subject to preservation and portability; and
  2. his accrued benefits in excess of the minimum MPF benefits can be paid out in cash lump sum upon leaving service.

13. If a new employee who is eligible to join an ORSO scheme opts for MPF scheme, he will be treated in the same way as the rest of the work force under the MPF System.

14. For a new employee who is not eligible to join an ORSO scheme, he would not have any choice but to join the MPF scheme.

Mandatory Provident Fund Office
Financial Services Branch
16 January 1997
[Ref. : Paper/MPF/SC/OI-7]


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