2. Members deliberated on the following subjects relating to interface arrangements between the Occupational Retirement Schemes Ordinance (ORSO) and Mandatory Provident Fund (MPF) systems.

Exemption criteria for ORSO registered schemes

(LegCo Paper no. CB(1) 667/96-97(02))

Differences between MPF & ORSO

3. Referring to the differences between ORSO and MPF schemes as listed in para. 4 of the Administrations information paper, members expressed concerns about the disparity between the two types of schemes.

4. In response, the Assistant Director, Regulatory Standards (AD/RS) advised that the fundamental difference between ORSO and MPF schemes was that the former were voluntary arrangements set up at the initiative of employers while the latter was a mandatory system. It would not be possible or fair to impose all the MPF requirements on existing ORSO schemes. The proposed interface arrangements had taken into account the different features of the two systems and were worked out after consultation with employee representatives and employer groups. He further explained that the arrangements were designed with the following objectives in mind-

to cause minimal interference to existing ORSO schemes since employers had already put in considerable resources in order to comply with the requirements of the ORSO;
to avoid upsetting the existing contractual relationship between employers and employees in respect of their rights and obligations under the ORSO schemes;
to provide equitable treatment to employees and to protect their rights and interests; and
to provide preservation of benefits for retirement either through ORSO or MPF schemes.

5. Pointing out that there were retirement schemes such as the one established by the China Motor Bus Co Ltd offering benefits lower than those under the proposed MPF system, Mr LEE Cheuk-yan suggested that the MPF requirements should form the minimum statutory standard for all retirement schemes. Miss CHAN Yuen-han and Mr CHAN Wing-chan shared the view that with the enactment of the Mandatory Provident Fund Schemes Ordinance (MPFSO), it would be unfair that "sub-standard" schemes which were inferior to the requirements for MPF schemes should continue to exist. The three members opined that where existing schemes fell short of the MPF requirements, they should be upgraded accordingly. Consideration should also be given to extending MPF safeguards such as the approval of trustees and the Compensation Fund to existing ORSO schemes.

6. Responding to members suggestions, AD/RS and the Director of MPFO (D of MPFO) explained the Administrations views as follows-

The majority of existing ORSO schemes already offered more generous terms than the prescribed terms of the MPF. Since no exemption under the ORSO would be granted for schemes established after the cut-off date of 15 October 1995, employers with no existing ORSO schemes would have to offer MPF schemes in order to fulfil their statutory obligations.
Due to the different structures of ORSO schemes (e.g. contributory versus non-contributory schemes, the vesting scale) and the circumstances of individual employees (e.g. years of service, intention to stay or quit), it was difficult and at times unfair to compare and generalise that one scheme was necessarily better or worse than another.
Employees participating in existing ORSO schemes would be given a one-off option to choose between the ORSO scheme or MPF coverage. Such an option could only be exercised upon implementation of the MPF system, on a change of employment, or upon reduction of future benefits.

7. Mr SIN Chung-kai concurred that the proposed arrangement was fair as employees were allowed to opt in their best interest.

Preservation and portability requirements on new members

8. Mr LEE Cheuk-yan pointed out the anomaly whereby under the majority of ORSO schemes, an employee who was rightfully dismissed for cause would not be entitled to any of the employers contributions to the scheme, but the same employee would be eligible for full and immediate vesting under a MPF scheme. Mr LEE therefore suggested that the implementation date of the MPF system should be taken as a cut-off date. For an employee under an ORSO scheme who was rightfully dismissed for cause , his employer could not withhold his benefits accrued after the cut-off date. Mr SIN Chung-kai shared Mr LEEs view. Mr James TIEN also commented that the Administration should consider the feasibility of the proposal.

9. In response, AD/RS remarked that Mr LEEs proposal would entail complicated record keeping and scheme arrangements, and would likely increase the administrative cost. Moreover, it might vary substantially the existing contractual relationship between employers and employees.

10. On members concern that the proposed Compensation Fund would not be extended to cover losses in assets of ORSO schemes, AD/RS advised that as the risk levels of ORSO schemes and MPF schemes were different, it would not be fair to encompass both types of schemes under the Fund. For example, the risk of investment had to be fully borne by employers in the case of defined benefit schemes registered under the ORSO.

11.As members remained concerned about the disparity between ORSO and MPF schemes, as well as the possibility of aligning both types of schemes using the standards of the MPF schemes as the minimum requirement, the Administration agreed to consider their concerns. It would also provide a paper setting out the feasibility and implications of the proposal to require employers to relinquish their rights to withhold employees benefits upon dismissal for cause.

MPFO

Exemption criteria for ORSO exempted schemes

(LegCo Paper No. CB(1)667/96-97(03))

12. On the Deputy Chairmans enquiry about the number of local employees covered by schemes exempted under ORSO, AD/RS informed members that as at 31 December 1996, there were 1,820 such schemes exempted for the reason that less than 10% or 50 of the scheme members were Hong Kong permanent identity card holders. A total of about 1,900 local employees were covered under these schemes. As regards their benefit level, AD/RS said that the Administration did not have full information as most of them were foreign retirement schemes.

Minimum standards on trusteeship and investments

(LegCo Paper No. CB(1)667/96-97(04))

13. As the standards on trusteeship and investments to be imposed on ORSO schemes exempted from MPF requirements would be less stringent than MPF schemes per se, some members expressed concern that the interests of scheme members would not be adequately protected under the former type of schemes and enquired about measures to monitor the standards of their existing trustees and investment advisers.

14. Responding to these concerns, AD/RS assured members that although the current trusteeship and appointment of investment advisers of ORSO schemes would be grandfathered, any newly appointed trustee and investment adviser must meet certain requirements under the MPFSO. As changes of trustees took place quite frequently, it was anticipated that these ORSO schemes would be able to meet the enhanced requirement fairly soon. As for current investment advisers, AD/RS said that most of them were already able to meet the requirements for MPF schemes.

15. In reply to members, AD/RS confirmed that at present, there were 193 ORSO schemes administered by individual trustees covering some 130,000 local employees.

Other Concerns

16. Mr LEE Cheuk-yan enquired whether any legislative amendment would be required to enable the MPF Schemes Authority to process applications from ORSO schemes for exemption. The Senior Manager, ORSO Interface advised that it might be necessary to amend the ORSO to enable the Registrar of Occupational Retirement Schemes to disclose the information on the schemes concerned to the Authority.

17. The meeting ended at 4:30 pm.

Legislative Council Secretariat
26 March 1997

Last Updated on {{PUBLISH AUTO[[DATE("d mmm, yyyy")]]}}

Subcommittee on Mandatory Provident Fund System

Minutes of Meeting held on Tuesday, 14 January 1997, at 2:30 pm in Conference Room A of the Legislative Council Building

I. Confirmation of minutes of meeting and matters arising