China Law Library

Defined Contribution Plan Procedures

CBL’s Introduction

China’s Defined Contribution Plan Procedures treat employer-sponsored pension plans as regulated trusts. Companies must bargain their plan with employees, register it, and comply with statutory caps on contributions and vesting. Notably, skipping any of these steps can cause regulators to freeze the fund or force liquidation. The Procedures, translated into American English by CBL, outline how businesses can create, adjust, or wind up a plan while staying compliant.

Contents

Chapter 1 General Provisions

Section 1 The purpose of these Procedures is to develop a comprehensive retirement insurance system, facilitate the creation of defined contribution plans, and improve retirement benefits for workers under the China Employment Act, Employment Contracts Act, Social Security Act, Trust Act, and applicable State Council procedures.

Section 2 “Defined contribution plans” under these Procedures refers to supplemental retirement insurance benefits offered by employers to employees already participating in the national retirement insurance program. Businesses are encouraged to implement defined contribution plans, and these Procedures shall govern the establishment of such plans.

Section 3 Both employers and their employees must contribute to defined contribution plans. All defined contribution plan funds shall be allocated to each participant’s individual account, and invested and managed pursuant to applicable Chinese law. Any returns generated from defined contribution plan investments shall be retained within the fund.

Section 4 Defined contribution plan taxation and financial management shall be governed by applicable Chinese law.

Section 5 Employers shall appoint trustees when establishing employee defined contribution plans and enter into trust agreements with such trustees on behalf of the beneficiaries. Trustees may be institutional trustees eligible for appointment under Chinese law or pension trustee boards established by businesses pursuant to applicable Chinese law.

Chapter 2 Defined Contribution Plan Establishment, Changes, and Termination

Section 6 Employers and their employees must be participants in the national retirement insurance program and fulfill the required contribution obligations to be eligible to set up defined contribution plans. Furthermore, employers must demonstrate the financial capacity to fulfill contribution obligations.

Section 7 The establishment of defined contribution plans and specific plan details shall be subject to collective bargaining between employers and their employees. Draft defined contribution plans must be submitted to a meeting of all employees or employee representatives for discussion and approval.

Section 8 A defined contribution plan must cover the following:

(a) Participants;

(b) Fund collection and distribution ratios and methods;

(c) Account management;

(d) Entitlement to benefits;

(e) Fund management;

(f) Benefit distribution and payment methods;

(g) Plan amendments and termination;

(h) Organizational management and oversight;

(i) Other agreed-upon matters.

Employees shall become eligible for enrollment in defined contribution plans upon completion of their probationary period.

Section 9 Businesses are required to file their defined contribution plans with their local county human resources and social security agency or its parent agency.

Central government enterprises must file their defined contribution plans with the Ministry of Human Resources and Social Security.

Businesses that operate across multiple provinces must file their defined contribution plans with the provincial human resources and social security agency having jurisdiction over their headquarters location.

Businesses that operate in different areas within a single province must file their defined contribution plans with the municipal human resources and social security agency or parent agency with jurisdiction over their headquarters location.

Section 10 Defined contribution plans shall become effective immediately unless the appropriate human resources and social security agency objects within fifteen days of receipt.

Section 11 Businesses and their employees may negotiate any changes to defined contribution plans necessary based on employer conditions pursuant to applicable Chinese law. Amended defined contribution plans must be discussed and approved by a meeting of all employees or employee representatives and subsequently filed with the appropriate human resources and social security agency.

Section 12 Defined contribution plans shall be terminated under any of the following conditions:

(a) The employer is wound up, ordered to shut down, or declared bankrupt under applicable law, thereby preventing the employer from fulfilling its obligations under the defined contribution plan;

(b) Force majeure or other events prevent the performance of obligations under the defined contribution plan;

(c) Any other termination conditions specified in the defined contribution plan.

Section 13 Employers must report any changes to or termination of a defined contribution plan to the trustees and the appropriate human resources and social security agency within ten calendar days. Following termination, employers must liquidate defined contribution plan funds pursuant to applicable Chinese law and complete the necessary procedures provided in Chapter 4 of these Procedures.

Chapter 3 Defined Contribution Plan Fund Composition

Section 14 Defined contribution plan funds shall be composed of:

(a) Employer contributions;

(b) Employee contributions;

(c) Investment returns from the defined contribution plan.

Section 15 Employer contributions shall be capped at 8% of the total wages paid to all employees. Combined employer and employee contributions shall be capped at 12% of the total wages paid to all employees. Employers and employees shall negotiate specific contribution amounts.

Employers shall deduct individual employee contributions from their monthly salaries.

Section 16 An employer may negotiate with its employees to temporarily suspend defined contribution plan contributions in the event of operating losses, reorganizations, mergers and acquisitions, or other material circumstances that hinder contributions. Employer and employee contributions must resume following the cessation of events preventing contributions, and missed contributions may be made based on actual business conditions pursuant to the original defined contribution plan. The amounts and durations of any such contributions must not exceed the amounts and durations of the suspended contributions.

Chapter 4 Account Management

Section 17 Employer contributions shall be allocated to each employee’s individual account in compliance with the proportions and methods specified in the defined contribution plan, and employee contributions shall be allocated to their individual accounts.

Section 18 Employers must maintain a reasonable difference between the maximum and average contribution amounts credited to individual employee accounts per contribution cycle. Employers shall not allocate more than five times the average contribution amount to any individual employee’s account within a single contribution cycle.

Section 19 Employee contributions to defined contribution plans and any investment returns accrued in their individual accounts vest immediately.

Employer contributions and associated investment returns credited to an employee’s account may vest immediately or under a graded vesting schedule based on the employee’s years of service pursuant to the specific agreement between the employer and employee. All such contributions and investment returns must become fully vested within eight years.

Section 20 Employer contributions and associated investment returns credited to an employee‘s account shall vest immediately under any of the following conditions:

(a) The employee reaches the statutory retirement age, is determined to lose the ability to return to work, or passes away;

(b) The defined contribution plan is terminated under § 12 of these Procedures;

(c) The employer terminates the employment contract for reasons other than misconduct, or the employee terminates the employment contract due to employer violations;

(d) The employer refuses to renew the employee’s employment contract upon expiration for reasons not attributed to the employee;

(e) Other circumstances specified in the defined contribution plan.

Section 21 Employer contributions and investment returns not yet allocated to an employee‘s individual account and unvested employer contributions and investment returns shall be allocated to the employer’s defined contribution plan account.

All employer contributions and investment returns must be allocated to individual employee accounts pursuant to the ratios and methods determined in the defined contribution plan.

Section 22 A worker changing employers shall have their defined contribution plan account transferred to their new employer’s defined contribution plan or public service pension plan.

The worker may retain the original trustee for continued account management or temporarily transfer the individual account to a reserve account under a collective plan administered by an institutional trustee if their new employer does not offer a defined contribution plan or public service pension plan, or if the worker is studying, enlisting in military service, or is not employed. The worker and their new employer shall negotiate the appointment of an institutional trustee if the original trustee is the former employer’s pension trustee board.

Section 23 Individual accounts will be temporarily transferred to a reserve account under a collective plan administered by an institutional trustee upon the termination of a defined contribution plan, and the employer and employee shall negotiate the appointment of an institutional trustee if the original trustee is the former employer’s pension trustee board.

Chapter 5 Defined Contribution Plan Benefits

Section 24 An employee shall become eligible to receive benefits from a defined contribution plan under the following conditions:

(a) An employee shall be eligible to receive their retirement benefits monthly, in installments, or as a lump sum payment upon reaching the statutory retirement age or losing the capacity to work. Alternatively, they may apply part or all of the benefits accrued under a defined contribution plan toward the purchase of commercial retirement insurance policies and receive benefits under such policies, with any remaining benefits passed through inheritance.

(b) An employee who permanently relocates overseas shall be eligible for a lump-sum payment of the funds accrued in their individual account upon request.

(c) Any remaining balance in an employee’s or retired employee’s defined contribution plan account may be passed through inheritance upon their passing.

Section 25 An employee not meeting any of the above conditions shall not be eligible to receive benefits from their individual defined contribution plan account in advance.

Chapter 6 Management and Oversight

Section 26 The pension trustee board shall consist of both employer and employee representatives, and employee representatives must comprise at least one-third of its membership. The board may also appoint third-party professionals.

The pension trustee board shall limit its activities to the management of the employer’s defined contribution plan.

Section 27 The trustee shall appoint eligible plan administrators, investment managers, and custodians to oversee management of defined contribution plan accounts, investment activities, and custodial services.

Section 28 Defined contribution plan funds shall be managed separately from the employer’s assets and those of plan beneficiaries, trustees, administrators, investment managers, or custodians, and any other natural persons, legal entities, or organizations providing fund management services. Plan funds may only be used for the purposes specified herein.

Defined contribution plan funds shall be managed pursuant to applicable rules.

Section 29 County human resources and social security regulators and their parent agencies shall oversee and enforce compliance with these Procedures. Non-compliance with these Procedures shall result in a warning and an order to correct issued by the appropriate human resources and social security regulatory agency.

Section 30 Disputes arising from the creation or implementation of defined contribution plans shall be resolved pursuant to Chinese laws governing collective bargaining agreements.

Disputes related to the performance of defined contribution fund management contracts shall be resolved through arbitration or litigation.

Chapter 7 Miscellaneous

Section 31 These Procedures apply to supplemental retirement plans established by other employers for the benefit of employees already participating in the national retirement insurance program.

Section 32 These Procedures shall take effect on February 1, 2018. The Defined Contribution Plan Temporary Procedures issued by the former Ministry of Labor and Social Security on January 6, 2004, are repealed.

Any defined contribution plans existing prior to the effective date that do not comply with these Procedures must be corrected within one year of the effective date.

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See CBL’s China Employment & Labor Law FAQ to learn more about how to succeed in China’s labor markets.

This article was translated to American English from the following government publication:

“企业年金办法”

https://www.gov.cn/zhengce/2022-08/31/content_5711313.htm

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