Alternatives Funding on Post-Employment Benefits Under Labor Law 13/2003

-ABSTRACT-

There are two types of post-employment benefits for public sector in Indonesia, the compulsory and voluntary benefits. The compulsory benefits are provident funds that provided by the workforce social security and the benefits that should be given based on the stipulation in the Labor Law no. 13 year 2003 (“the Labor Law”). The voluntary benefits are given by a pension plan that is established under the Pension Law no. 11 year 1992 (“the Pension Law”).

A pension plan, especially the defined benefit plan, needs a regular and systematic funding to fulfill the liability of providing benefits for all of the pension plan participants. On the contrary, there is no regulation or direction of funding on the post-employment benefits under Labor Law which are calculated using a defined benefit formula.

A company that paid the post-employment benefits by pay-as-you-go system and accrued the real payment in the company’s balance sheet, may have a fluctuate cost that lead to the bad budgeting and miscalculation of profit in the long-term. Moreover, nonexistence of separated fund can not guarantee the post-employment benefits payment for all of the beneficiaries.
A company that already has a pension plan may integrate its pension plan to the stipulation of providing post-employment benefits under Labor Law. The integration should be implemeted according to an agreement reached by the employees and the employer.

The integration for the company without a pension plan could be implemented by establishing a pension plan. The company may choose to establish a defined benefit plan, defined contributions plan, or a hybrid plan, whichever is the most suitable to the interests of company and employees as well. The funding and implementation on the pension plan could be done by setting up a pension fund according to the Pension Law, or leave the implementation conducted by a third party. The design of a pension plan should consider the replacement income ratio at retirement age, company’s financial condition, and justness between all employee classifications.