Employer
Employers should not dismiss employees before the transition date
Employers will not save SP/LSP expenses by dismissing employees before the transition date and employing new ones because:
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Employers may continue to use the accrued benefits derived from their MPF contributions (irrespective of the contributions made before, on or after the transition date, and irrespective of mandatory or voluntary contributions) to offset employees' pre-transition portion of SP/LSP after the abolition of MPF offsetting arrangement; and
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The SP/LSP of existing employees will be divided into pre-transition portion and post-transition portion. The pre-transition portion is calculated on the basis of employees' monthly wages immediately preceding the transition date and years of service as at the transition date. Regardless of any salary increase afterwards or the length of employment after the transition date, the amount of pre-transition portion of SP/LSP will be the same as if the employees had terminated employment before the transition date.
If the total amount of an employee's SP/LSP exceeds the $390,000 cap, the amount in excess will be deducted from post-transition portion of SP/LSP (i.e. the portion which is "non-offsettable" by ERMC).
On the contrary, a higher amount of SP/LSP will be incurred if employers dismiss employees before the transition date and employ new ones because:
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Retaining existing employees allow ERMC to grow which can be used to offset employees' pre-transition portion of SP/LSP in future; and
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If existing employees continue to be employed, their total SP/LSP (i.e. the sum of pre- and post-transition portion of SP/LSP) are still capped at $390,000. For example, if an employee's SP/LSP has already accumulated to $300,000 before the transition date, the amount of post-transition portion of SP/LSP can only be $90,000 at most. If the employee's SP/LSP has already reached the $390,000 cap before the transition date, no further SP/LSP can be accumulated. However, in case the employer dismisses the employee before the transition date and hires a new one, the new employee's SP/LSP will build up afresh to a maximum of $390,000, which cannot be offset by ERMC.
Example 1