Draft legislation to remove the offsetting mechanism that allows employers to offset their contributions to the Mandatory Provident Fund (MPF) or similar statutory retirement plans — such as MPF-exempt Occupational Retirement Schemes Ordinance (ORSO) plans —against long-service payment (LSP) or severance payment (SP) obligations under the Employment Ordinance has been presented to the Legislative Council.
Employers would need to make additional contributions to the DSA Scheme. Employers with significant historical LSP/SP payouts may wish to conduct an actuarial costing in advance to assess the potential accounting impact.
Most companies surveyed by WTW utilize the offset against severance or long-service payments as a matter of policy (around 60%) or determine whether to do so on a case-by-case basis (18%). It is hoped that the decision to grandfather the pre-transition date service benefit entitlement will reduce the risk of dismissals of employees with particularly long service records by employers trying to reduce their LSP/SP liabilities before the abolition of offsetting comes into force.