Global News Brief

In 2007, workers had to decide between continuing to accrue their future indemnity allocations (Trattamento di Fine Rapporto or TFR) with their employer, or to transfer future TFR accruals to an outside pension plan, and explicitly notify their employers of this choice. They have been required to keep their TFR in the plan they chose for a minimum period of two years. As of July 1, 2009, that two-year period has ended for those who enrolled within the 2007 deadline, and workers are free to switch pension plans.

Key Details

The main particulars of this shift are as follows:

• Employees can now switch their plans between what they currently have and their company pension plan, their industry-wide pension plan, or individual pension plans offered by insurance companies.
• Those who choose to switch can now transfer the entirety of their accumulated savings into their new fund. This would include TFR as well as employer and employee contributions. Previously, if workers wanted to switch plans, they were only able to put future contributions into the new fund, while their accumulated funds would have remained in the old one for at least two years.
• Employees who choose to switch from an industry-wide or company plan to an individual retirement plan will not be entitled to receive additional employer contributions.
• Employers who offer industry-wide or company-sponsored plans that are not competitive may have their employees lured away by financial advisors to individual retirement plans.

Background

In January 2007, second-pillar reform regulations were passed that allowed employers to set up company supplementary plans in addition to industry-wide pension plans for their employees. Employees who failed to make the decision of which fund to enroll in by the June 30, 2007 deadline, or after six months from their date of hire, were automatically enrolled in either the industry-wide pension fund or the company-sponsored fund. Where neither the industry-wide fund (for instance, in the credit sector) nor the company-sponsored fund existed, a new pay-as-you-go fund was set up by the National Social Security Institute.

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