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Money Matter


Article exclusively contributed by the Mandatory Provident Fund Schemes Authority

Understanding MPF offsetting arrangements


Dora and Janet have worked as merchandisers for a trading company for more than 10 years. However, due to a major business reorganisation, they were laid off last month. When they left the company, their employer informed them that they were entitled to long service payments under the Employment Ordinance. These payments would be offset by the accrued MPF benefits derived from the employer's contributions.

Dora and Janet discussed what they had been told and doubted whether their employer was allowed to do this. "I think MPF and long service payments are different matters and the MPF should not be used to offset long service payments," Dora said. Janet was of the same opinion. "That is exactly what I thought," she replied, "but my friend's experience makes me think I might be wrong."

About a year ago, her friend had been dismissed in similar circumstances. When this happened, the company had used part of the employer's MPF contributions to offset the severance payment he was entitled to. Janet recalled this but was not sure whether the same rule applied to long service payments.

"By the way, my MPF benefits would not be enough to offset the full amount of my long service payment," said Dora, after checking the figures. "So what should be done in that case?" Janet agreed this was an important point. "Even if this type of offsetting arrangement is legally allowed, we should be told exactly how the calculation is made and what the implications are," she said.

Dora and Janet realised they should take appropriate steps to protect their own interests. They finally decided to call the hotline of the Mandatory Provident Fund Schemes Authority (MPFA).

Dora took the lead. "Is my employer legally allowed to use my MPF contributions to offset the long service payment I am entitled to? And, does the same rule apply to severance payments?" she asked.

After listening to the details, a member of staff at the MPFA's call centre explained: "According to the Mandatory Provident Fund Schemes Ordinance, employers can offset the long service payment or severance payment, as required under the Employment Ordinance, with the accrued benefits derived from the contribution made by the employer."

Things were clearer but Dora had further questions. "How does the arrangement work in practice in my case?" she asked. "Does it mean my employer only has to pay me the difference between the long service payment I am entitled to and the accrued MPF benefits derived from my employer's contributions?"

This point was also explained: "The employer must pay the employee the full amount of the long service or severance payment first. He can then apply to the MPF trustee to withdraw the relevant amount of accrued MPF benefits, from the contributions made by the employer, for the purpose of offsetting."

Q&A on MPF benefits offsetting long service or severance payments
Q1 What should be done if the MPF accrued benefits contributed by the employer are insufficient to offset the long service or severance payment completely?
A1 If the MPF accrued benefits derived from the employer's contributions are insufficient to offset the full amount of the long service or severance payment, the employer has to make up the difference from his own pocket according to the legislation.

For example, if the total long service payment Dora is entitled to receive from her employer is HK$120,000, and the accrued MPF benefits from her employer's contributions are HK$35,000, her employer can claim back HK$35,000 from the MPF trustee, under the offsetting arrangement, after paying Dora HK$120,000 as a long service payment.

Q2 Is the amount of MPF contributions that can be used to offset long service or severance payments exactly the same as the total amount of the monthly contributions made by the employer?
A2 The amount used for offsetting long service or severance payments is the accrued benefits derived from the contribution made by the employer. That means, apart from the employer's monthly contributions, investment returns from the employer's contributions can also be used for offsetting purposes.

Q3 Why was such an offsetting arrangement adopted?
A3 Under the Employment Ordinance, an employer can use his retirement scheme or provident fund scheme contributions to offset the long service and severance payments which should be paid to employees. When deliberations about the Mandatory Provident Fund Schemes Ordinance took place in the Legislative Council in 1995, the issue was extensively debated before legislators finally agreed to retain the offsetting arrangement.


Taken from Career Times 23 July 2004

(Last review date: 23 August 2013)


Disclaimer: The opinions expressed in this article are those of the contributor.

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