Introduction of Retirement Allowance & Pension System

1. Retirement Allowance System

Each employer shall establish at least one retirement benefit scheme in order to pay benefits to retiring workers, if any employer fails to establish a retirement benefit scheme or an individual retirement pension scheme, such employer shall be deemed to have established a retirement allowance system as per Guarantee of worker's retirement benefits Act Article 8. (Hereinafter “Act”).

(Exception) This shall not apply to workers whose continuous service period is less than one year, nor workers whose average weekly working hours over a four-week period is less than 15 hours.

2. Retirement Pension system

Retirement Pension System is that employer have to reserve and operate the retirement allowance in the financial institutions, company will be paid the one-time retirement allowance or pension when each employee is actually retired. The employer of a business newly established on or after the enforcement date of the Guarantee of Workers' Retirement Benefits Act as wholly amended by Act shall establish a defined benefit plan or a defined contribution plan within one year of the establishment of the business after seeking the opinions of the representatives of workers.

3. Types of the retirement pension system in Korea

(1) Defined Benefits Pension Plan

① Defined Benefits Pension System is that any employer who intends to establish a defined benefit plan shall prepare rules for defined benefit plan stipulating the payment amount, periods etc with the consent of, or after seeking opinions from, the representatives of workers and shall report such rules to the Minister of Employment and Labor.

② This system is responsible for the establishment & operation of the pension fund by the employer, as a results of fund operation, the employer's burden (loss or profit) will bear the fluctuation in the future.

③ On the other hand, employees or workers can receive the regular and safe pension after the retirement

④ Defined Pension system can be reserved the maximum 40 % of retirement pension in the internal company under the Act, in this case if company will go bankrupt and it'll be safe only 60 % of the external deposit amount.

(2) Defined Contribution Pension system

① Defined Contribution Pension is that the burden or contributions amount which have to pay by employers is concluded in advance with the employee

② This system is responsible for the establishment & operation of the pension fund by the employees or workers. An employer who has established a defined contribution plan shall contribute no less than an amount equivalent to 1/12 of the total annual wages of a participant in cash to the participant's account of the defined contribution plan. Apart from the amount contributed by the employer, a participant may contribute an additional amount at his/her own expense to his/her account of the defined contribution plan.

③ This system is 100 % secure deposits and it's operated himself/herself apart from the

Company's financial operation.

④ For company's aspect, the burden of the retirement allowance is fixed every year and it can be easier financial operation and hedged the future financial risk.

(3) Comparison between Defined Benefit Pension Plan and Defined Contribution Plan

4. How to levy the tax of the retirement pension income

5. How to design and operate the retirement system

(1) Draft the Retirement Pension Agreement

To introduce the Retirement Pension System actually in the company, company have to make a draft the Retirement Pension Agreement in advance and then need to consent with employee's representative. Finally company have to report it to Minister of Employment and Labor. However if the rules of employment is stipulated the related clause of Retirement Pensions, no need to prepare the Retirement Pension Agreement.

(2) Operation of the Retirement Pension Fund

In order to manage safely for the operation management of a reserve for employees' retirement allowance, it's required to assign & operate by the retirement pension trustees by law and regulations. The asset management of the reserved pension also have to assign to the retirement pension trustees. The type of contract with the retirement pension trustees is to protect the employee's qualified recipients and only permit to operate it separately with company's account. The types are just like as a special account of insurance contract and trust account.

※    The retirement pension trustee have to meet and register the certain terms and conditions as following company

①    An investment trader, investment broker, or collective investment business entity under the Financial Investment Services and Capital Markets Act:

②    A insurance company under the Insurance Business Act

③    A bank under the Banking Act;

④    The National Credit Union Federation of Korea under the Credit Unions Act;

⑤    The Korean Federation of Community Credit Cooperatives under the Community

⑥    Credit Cooperatives Act;

⑦    The Korea Workers' Compensation and Welfare Service the Industrial Accident

Compensation Insurance Act (The objects of the retirement pension business of the Korea Workers' Compensation and Welfare Service shall be limited to businesses employing less than 30 ordinary workers);

⑧    Any other person corresponding to those who permitted by Presidential Decree.

 (3) Individual Retirement Account (“IRA”)

A person who has received lump-sum benefits under a retirement benefit scheme (“IRA”). A participant of a defined benefit plan or a defined contribution plan who intends to additionally establish an individual retirement pension plan at his/her own expense. Any retirement pension trustee may operate an individual retirement pension plan. A person who want to quit or move the other company can reserve IRA and then re-start to save their pension fund onward.