Pensions for all start Tuesday

Some 90% of businesses may not comply with new law and some say it will usher in a rash of firings.

December 31, 2007 00:13
3 minute read.
Pensions for all start Tuesday

Yishai pensions 224.88. (photo credit: Channel 2)

Industry, Trade and Labor Minister Eli Yishai made history Sunday as he signed an extension order expanding a collective pension agreement introduced by the Histadrut in July to include all of the country's workers effective January 1. "This is a very historic agreement and we are talking about some one million workers now being brought in to the pension sector," said Ofer Eini, chairman of the Histadrut Labor Organization. "This is something that has been discussed for more than 30 years and I finally decided to do something about this and we have been able to make it a reality." Yishai first announced his intention in November to expand the original collective agreement signed between the Histadrut and the Manufacturers Association of Israel. According to the agreement, employees who are at least 21 years of age and have been working at the same company for at least nine months will be immediately eligible to start receiving payments into their pension plans, beginning with allocations of 2.5 percent of their monthly salary, with this number increasing to 5% in 2009, 7.5% in 2010, 10% in 2011, 12.5% in 2012 and 15% in 2013. Under terms of the extension order, employers will contribute two-thirds of the pension, while employees will allocate the remaining one-third from their monthly salaries. The agreement additionally stipulated that workers will be able to place the money either into a straight pension fund, a trust fund or a patient fund. If employees do not make a choice within 60 days, employers can choose on their own. "This is a very, very significant and important issue for all of the country's workers," Uriel Lynn, president of the Federation of Israeli Chambers Commerce, told The Jerusalem Post. "Until now, workers in small- and medium-sized companies were not included in the pension agreement and now they will be guaranteed a pension." Because the agreement is being introduced so late in the year, however, there is only a short window of time for business owners to get ready for the changes. "Most business people wait until something is final and then they start learning it. This program however, comes at a very busy time and it would have been nice had they given businesses more time to understand it as pension plans are something very important and they should be paid more attention," said one accountant. Meanwhile, not everyone was thrilled with the deal, which was expected to add to employers' costs significantly. The Israel Merchants Association estimated that 90% of business owners would not comply with the pension plan, and some believe the pension plan may actually usher in a rash of firings as small business owners cope with added costs brought on by the pension payments. Those companies that fail to provide employees with the appropriate pension plan will be subject to prosecution in a court of law. "Many small businesses operate on thin margins and the added payouts from the pension plan will force them to lay-off some workers in order to make the necessary payments," Douglas Goldstein, a certified financial planner and Director of Profile Investments, told the Post. "I recently spoke with one business owner who told me that he is going to have to fire at least one of his employees and we have anecdotal evidence that many small business owners just keep employees on to be nice even though they are not so productive - those employees are more likely now to be let go." Goldstein also noted that in addition to added costs from the pension payments, business owners are also going to have pay more money to accountants and human resource people as they prepare for the introduction of the program. Lynn, however, explained that the gradual introduction and increasing of the percentages paid out each month would allow businesses to more easily adjust to shouldering the burden of the additional costs. "While manufacturers will have to raise prices, the pension plan will have a small overall impact on the economy and a small effect on consumers," he said, adding that the 15% monthly payouts into employees' pension plans is below the 17.5-20% of most employees today in Israel. While there had been discussion about lowering the minimum age from 21 to 18, Lynn stood very opposed to such a move. "First of all, kids who are 18 should be going to the army, they should not be working," he told the Post. "We don't want to have a program that would encourage young adults to run away from the army, and second of all, we really didn't think that pensions would be something 18-year-olds would be interested in - they would not want money to be taken out of their salaries every month."

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