Temporary Corona Unemployment: what impact on occupational pension rights and risk cover?

The current crisis relative to COVID-19 has resulted, for many employees, in temporary unemployment. On 26 March 2020, Assuralia, the association of the insurance companies, announced a few measures in order to avoid the suspension of the accrual of occupational pension rights and the risk covers related to the professional activity during the corona unemployment. However, a legal framework was required to implement this.

On 18 May 2020, the act providing for exceptional measures relative to the COVID-19 pandemic in relation to pensions, occupational pensions and other additional benefits related to social security has been published in the Belgian State Gazette. This Act contains measures to neutralise the impact that temporary corona unemployment could have on the accrual of pension rights and risk covers related to the professional activity (both for plans at sector and at company level, managed by an insurer or by a pension fund (IORP)).

Because of the crisis caused by COVID-19, many employees have found themselves in temporary corona unemployment and therefore no longer receive a salary. As a consequence, the accrual of occupational pension rights and risk covers related to the professional activity would in many cases be suspended.

The Act of 7 May 2020 aims to avoid this suspension and sets out the principle of automatic continuation, during the whole period of temporary corona unemployment, of the accrual of pension rights and of the following forms of risk cover:  

• occupational pensions and some additional insurances connected to it;
• medical , work incapacity and disability insurances related to the professional activity;
• work incapacity and disability covers managed by an institution for occupational retirement provision (a pension fund).

This automatic continuation will take place without any (e.g., tariff) modification or (e.g., medical) formality. It is important to note that this continuation requires no (immediate) amendment to the pension plan rules (see below). This continuation applies in a situation of temporary corona unemployment in the period between 13 March 2020 and 30 June 2020, unless this period would be extended by royal decree up to 30 September 2020.

The Act also provides the possibility, on simple request from the “organizer”, to postpone the payment of the corresponding premiums until 30 September 2020 (without any possible contestation). If the organizer wishes to use this possibility to postpone, it has to forward the relevant information to the pension provider. This possibility to postpone concerns both employer and personal premiums. It has to be noted that when postponing personal premiums, problems may arise at the time that the premium arrears need to be paid. Indeed, the income of the employees concerned would be severely reduced if all the unpaid premiums were to be recovered in September. The organizer and the employees concerned can agree to spread the payments in time. However, the organizer will have to pay the total amount (sum of the postponed employer and personal premiums) to the pension provider on 1 October 2020.

The Act also regulates the impact of such postponing on the return, which is granted by the pension provider. If the pension provider has a best-efforts obligation, the return on the premiums will only be granted as of the time of actual payment of those premiums. If the pension provider has an obligation of results (a branch 21 product), a distinction has to be made depending on the type of contract:

• If it is a classic contract with fixed premiums, the return will be granted as of the due date of the premium (even though the payment of this premium is postponed).
• If it is a “universal life” contract (for which the payment of the premium is not fixed in advance), the return on the premiums will only be granted as of the time of actual payment of those premiums.

On the other hand, the Act sets out that postponing the premiums has no impact on the guaranteed return due by the organizer (the minimum guaranteed return of Article 24 of the Act on Occupational Pensions (1.75% in 2020) in case of a cash balance or defined contributions plan with guaranteed return). This return will be immediately granted, independently of the actual time of payment of the premiums.

The Act of 7 May 2020 imposes on the pension providers an obligation of information towards the organizers in order to inform them about the impact of the temporary unemployment on the different forms of risk covers, as well as about the measures that the Act sets out to limit the effects of this temporary unemployment. The pension provider is thus required to forward certain information (listed in the Act) to the organizers.

The Act also provides for the possibility for the organizer to nevertheless suspend the accrual of the pension rights and the risk covers (opt-out). If the organizer makes this decision, he has 30 days to inform the pension provider thereof. This 30-day period runs from the day after the notification by the pension provider, or from the day after the beginning of the first period of temporary corona unemployment (in the event this period starts after the notification of the information).

It is important to note that the opt-out possibility available to the organizer does not concern the death cover which is mandatorily maintained, as applicable on the day before the temporary corona unemployment, until 30 June 2020 (as long as the scheme member stays in temporary corona unemployment until this date).

The continuation of the accrual of pension rights and of the risk covers as well as the postponing of the premiums directly result from the Act.  It is thus not required to follow the modification procedure of the pension plan or solidarity rules set out in the Act on Occupational Pensions. The formal modification of the pension plan rules or of the solidarity rules must nevertheless intervene, where appropriate, by 31 December 2021 at the latest. Furthermore, the organizer is required to inform the scheme members about, among other things, the continuation or the suspension of the accrual of the pension rights and/or the risk covers.

This Act enters retroactively into force on 13 March 2020. It is applicable until 30 September 2020, except for the obligation to modify the plan rules referred to in the preceding paragraph.

Action Point

As a pension provider: forward the required information to the organizers (employers or organizers at sector level) as soon as possible.

As an organizer: start the reflexion on whether to make use of the opt-out as soon as possible in order to take the decision to suspend – or not – the accrual of the pension rights and the risk covers (and the premiums) ; forward this decision to the pension provider on time ; also forward the required information to the scheme members in due course.