Regulation of state and supplementary pension schemes in Argentina: overview

A Q&A guide to pensions law in Argentina.

The Q&A gives a high level overview of the key practical issues including: state pensions; supplementary pensions; funding and solvency requirements; tax on pensions; business transfers; participation in pension schemes; and employer insolvency and overall scheme solvency.

To compare answers across multiple jurisdictions, visit the Pensions: Country Q&A tool.

The Q&A is part of the global guide to pensions law. For a full list of jurisdictional Q&As visit www.practicallaw.com/pensions-guide.

Daniel Orlansky and Felipe Graham, Baker & McKenzie (Buenos Aires, Argentina)
Contents

Pensions

State pensions

1. Do employers and/or employees make pension contributions to the government in your jurisdiction?

Contributions paid to the government

Employers and employees contribute to the Argentine state pension plan known as the Argentinean Integrated Pensions System (Sistema Integral Previsional Argentino) (SIPA).

As a general rule, employers fund the SIPA by paying 10.17% of their employees' gross salary, without any cap.

However, employers who operate in the commerce and services sector and whose annual gross revenue exceeds AR$48 million must contribute at a higher rate: 12.71% of their employees' gross salary, without cap.

Employees contribute 11% of their gross pay, but there is a cap to the amount payable. As of March 2015, gross amounts exceeding AR$43,202.17 are not subject to employees' contributions.

Contributions to the SIPA continue until the employees retire. Men can retire at the age of 65 and women at the age of 60 (although women can also chose to work until the age of 65). In order to be entitled to a retirement pension, an individual must have both reached the retirement age and contributed 30 years' worth of social security contributions.

Work performed under unhealthy or risky conditions may result in a reduction of both the retirement age and the number of years of contributions required to be made to the pension plan in order to qualify to receive a pension.

Regulatory framework

The regulatory framework is mainly provided by Law No 24,241 (which established the SIPA) and Law No 26,425 (which unified the previously existing retirement and pensions regime into the SIPA scheme).

The Federal Tax Authority (Administración Federal de Ingresos Públicos) (AFIP) is the governmental body in charge of auditing that the social security withholdings and contributions are actually remitted to the SIPA. To that end, the AFIP can resort to a computing tool known as "Work Registered Online" (Trabajo Registrado en Línea) through which it can verify if employers have complied with their social security obligations.

In the event that the AFIP finds that some social security obligations were not complied with, it will use the information obtained through the "Work Registered Online" tool to initiate a tax enforcement procedure. The information contained in the "Work Registered Online" tool will be considered as sufficient evidence of the alleged non-compliance with the applicable legislation, without prejudice to the employer's right to challenge the AFIP's assessment of tax debt.

Taxation of contributions

Income tax is calculated on the gross salary. The employees' social security contributions are deductible from the gross salary calculation for income tax purposes.

Monthly amount of the government pension

The monthly amount of the state pension any given individual receives is essentially linked to his social security contributions while on active service and his salary during the last years of employment.

However, the government guarantees a minimum gross monthly retirement benefit, which, as of March 2015, stands at AR$3,821.73. By the same token, there is a cap to the maximum gross monthly retirement benefit, which is of AR$27,998.69.

The National Social Security Administration (Administración Nacional de la Seguridad Social) oversees the Argentinean Integrated Pensions System (Sistema Integral Previsional Argentino) (SIPA)

Supplementary pensions

2. Is it common (or compulsory) for employers to provide access, or contribute, to supplementary pension schemes for their employees? If they do, are they:
  • Occupational (that is, linked to an employment or professional relationship between the plan member and the entity that establishes the plan)?

  • Personal (that is, not linked to an employment relationship, established and administered directly by a pension fund or a financial institution acting as pension provider, where individuals independently purchase and select material aspects of the arrangements, though the employer may make contributions)?

As employees must contribute to the SIPA, and participation in a supplementary pension scheme is completely optional. Generally, employers do not agree to pay contributions to personal retirement funds. However, although it is not the general practice of all employers, when contributions are agreed, it is usually because the employer has decided to contribute to a supplementary pension scheme for their employees. Some multinational employers offer white collar employees this as a benefit.

Some companies offer a supplementary retirement plan to corporate directors who have managerial positions in consideration for them resigning from the employment social security system. In these specific cases, the law grants the corporate directors who also have managerial roles an option to decline enrolment in the social security system as employees, contributing only as corporate directors. In these circumstances, employers and employees have no obligation to contribute to the SIPA. In consideration for the savings and potential reduction of the retirement and pension benefit, employers generally offer a supplementary retirement plan which costs less than the equivalent employers' social security contributions.

As regards occupational schemes, the Collective Bargaining Agreement for employees of the commercial and services sector (CBA 130/75) should be mentioned. Under the Argentine system, CBA 130/75 is mandatory for all employers in the commercial and services sector. CBA 130/75 covers all employees, except those who have a level of hierarchy and responsibility (that is, chiefs, managers and directors). Employees under the scope of CBA 130/75 are also mandatorily enrolled under its provisions. Under CBA 130/75, employers must contribute 3.5% of the covered employees' gross salary to a retirement scheme named "la Estrella". Chiefs, managers and directors can choose to enrol under the la Estrella scheme, although this is not common practice, as they are the ones who have to make their own contributions to the scheme.

Employers' contributions per employee to the la Estrella scheme are used in two ways:

  • 50% is allocated to an individual account of the corresponding employee.

  • 50% is allocated to fund the basic benefit.

 
3. Where supplementary schemes are provided, do these schemes provide pensions, the value of which:
  • Is linked to the employee's salary (defined benefit)?

  • Is linked to employer and/or employee contributions and investment return on those contributions (defined contribution)?

Linked to the employee's salary

Employees who retire on reaching the legal retirement age sometimes receive a termination bonus. This bonus is usually a number of salaries based on the employee having worked for a certain length of time.

Linked to employer and/or employee contributions

Normally, supplementary pension schemes are linked to employer and/or employee contributions and investment return on those contributions (defined contribution).

The retirement scheme under CBA 130/75 also provides for a defined contribution scheme (see Question 2).

 
4. For supplementary pensions:
  • Is there a minimum period of service before workers are entitled to receive vested rights?

  • Are there any legal requirements for schemes or providers to index pensions in payment and/or revalue pension rights in deferment?

Minimum period of service

Most supplementary pension schemes have a gradual vesting schedule for entitlement to 100% of the employer contributions. A normal vesting schedule would be:

  • Employee has worked for less than three years: 0%.

  • Employee has worked for between three and four years: 33.33%.

  • Employee has worked for between four and five years: 66.67%.

  • Employee has worked for more than five years: 100%.

Besides the years of service vesting schedule, pension schemes also provide that employer contributions become vested and payable on retirement (due to resignation, termination without cause, termination due to disability, death or age retirement), except for cases of termination with just cause. Termination with just cause is an exception for not paying the benefit arising from the employer contributions.

Employee contributions can usually be withdrawn at any time (although certain penalties may become payable).

As regards the benefit under CBA 130/75 (see Question 2), employees must have a minimum seniority of ten years under the scope of the CBA 130/75 to be entitled to the supplementary pension, as follows:

  • Seniority at retirement of ten years: 50% of the basic benefit is payable.

  • Seniority at retirement of 11 years: 55% of the basic benefit is payable.

  • Seniority at retirement of 12 years: 60% of the basic benefit is payable.

  • Seniority at retirement of 13 years: 65% of the basic benefit is payable.

  • Seniority at retirement of 14 years: 70% of the basic benefit is payable.

  • Seniority at retirement of 15 years: 75% of the basic benefit is payable.

  • Seniority at retirement of 16 years: 80% of the basic benefit is payable.

  • Seniority at retirement of 17 years: 85% of the basic benefit is payable.

  • Seniority at retirement of 18 years: 90% of the basic benefit is payable.

  • Seniority at retirement of 19 years: 95% of the basic benefit is payable.

  • Seniority at retirement of 20 years or more: 100% of the basic benefit is payable.

Years of service in the commerce sector will be added to calculate the employees' seniority to access this benefit (regardless of whether under different employers) unless there is an interruption in services which exceeds 12 months.

Employees under the la Estrella scheme are entitled to two different benefits:

  • A basic benefit, which is the same for all employees and consists of a life annuity.

  • An additional benefit, the value of which depends on the balance of the individual account of the employee. This means that the additional benefit will depend on the employee's years enrolled under la Estrella scheme and his income.

Legal requirement to index

Indexation is specifically prohibited under Argentine law (Law No 23,928, sections 7 and 10, and Law No 25,561).

Amounts are either adjusted because of the investment (defined contribution) or because they become payable calculating the last salary as a factor (defined benefit).

Funding and solvency requirements

5. In relation to supplementary schemes, are these generally funded or unfunded? If funded, are there any solvency requirements on the sponsoring employer or provider?

Funded or unfunded?

Defined contribution schemes are normally funded by employers and employees. Contributions are normally placed with an insurance company or trust fund which invests the money under certain guidelines that have been previously agreed.

Solvency requirements for funded schemes

Defined benefit plans are not very common, and those who implement such a plan must make the appropriate accounting provision. There is no specific funding regulation.

For defined contributions with retirement insurance, the insurance company is subject to the solvency requirements required under the Insurance Law, which is supervised by the National Insurance of Superintendency (Superintendencia de Seguros de la Nación) (SSN).

If the supplementary schemes are with a trust fund that invests the money with investment funds, the funds will be subject to the scrutiny of the National Commission of Trading Papers (Comisión Nacional de Valores), or the corresponding foreign entity in charge of such supervision in each country.

 
6. In relation to access for members to the funds in their supplementary pension scheme:
  • To what extent can members transfer their funds to another pension scheme?

  • How do members normally take the benefit of their funds (for example, lump sums, income withdrawals (drawdown), life annuity arrangements)?

  • What are the legal restrictions upon access to the funds (for example, age)?

  • What are the common arrangements for early retirement and ill-health retirement?

  • Are dependants of deceased members entitled to receive benefits payable on the member's death? What form do these commonly take?

Member's transfer of funds

Members can only transfer funds to other supplementary retirement schemes when they become entitled to those funds. The payment of a lump sum is the most common practice. Some insurers offer alternatives for investing the withdrawal with life annuity arrangements or similar arrangements.

Taking pension benefits

Benefits are usually paid as a lump sum on retiring from the company.

Legal restrictions

Supplementary schemes are usually set out to last until the employee leaves the company for any of the following reasons:

  • Resignation.

  • Termination without cause.

  • Termination due to disability.

  • Death.

  • Age retirement.

Usually, termination with cause is an exception for not paying the benefit arising from the employer's contributions.

Early and ill-health retirement

Normally, supplementary schemes state that early and ill-health retirement entitles an employee to a full payout, without any penalty or vesting schedule.

Dependants' benefits

Dependents of deceased members are entitled to receive the benefits payable on the member's death. The benefit (generally in the form of a lump sum) must be distributed amongst the legal heirs of the deceased (unless otherwise established in the deceased's valid will).

Argentine inheritance law provisions are deemed to constitute public policy, which means that the legal and mandatory successors can challenge any payment to any designated beneficiary if the legal successors' rights to the mandatory portion of the member's succession are violated or diminished in any manner whatsoever.

 
7. Is there a regulatory body that oversees the operation of supplementary pension schemes? Do any other governance regimes apply to supplementary pension schemes?

Regulatory body

There is no regulatory body that oversees the operation of supplementary pension schemes.

However, those supplementary pension schemes structured as a retirement insurance are overseen by the National Insurance Superintendency (Superintendencia de Seguros de la Nación) (SSN). The SSN is a public decentralised body independent from the Ministry of Economy and Public Finance. It supervises and oversees all insurance and reinsurance entities in Argentina. Its main mission is to monitor the evaluating and inspection activities of market operators to ensure compliance with the applicable laws and regulations.

There is no supervising body in charge of monitoring trust funds in Argentina, although they may be subject to the "indirect" control to which the trust invest the funds (see Question 5 regarding the scrutiny of the National Commission of Trading Papers).

Other key governance requirements

There is no particular regulatory body to oversee compliance with supplementary pension schemes.

Penalties for non-compliance

Penalties will depend upon the sort of plan that each company implements (insurance, trust, accounting provision, and so on). Employees can take judicial actions against the plan administrators if they breach the terms of the plan, and can request the court to impose a penalty.

Tax on pensions

8. Are any tax reliefs available on contributions to supplementary pension schemes (by the employer and employees)?

Tax relief on employer contributions

Based on the position held by the Federal Tax Authority (Administración Federal de Ingresos Públicos) (AFIP), no major tax reliefs on contributions to supplementary pension schemes are available (whether those contributions are from the employee or the employer).

Tax relief on employee contributions

See above.

 
9. Are there any approval or registration requirements with the local tax authority where a supplementary scheme is established?

Not applicable (see Question 8).

 
10. What is the tax treatment of investments made by the scheme?

Gains arising from the investment made by the scheme are subject to income tax at a rate that ranges from 9% to 35%, depending on the annual accumulated income of each employee.

 
11. What is the tax treatment of pension and lump sum payments made to members?

Income tax is levied on pensions and lump sum payments made to members (gains comprised of contributions made by the employer plus profits from those gains and from the amounts to be contributed by the employees under the pension plan). Income tax is progressive, and it depends on the employees' salaries and ranges from 9% to 35%.

In general terms, under a resolution of the tax authority, individuals who by 2013 earned less than AR$15,000 are exempt from income tax, regardless of their current salary.

Income tax depends on income and personal deductions, and is not straightforward to calculate, as the amount payable is assessed on a case-by-case basis.

Income tax is to be paid whenever the employee is entitled to dispose of such funds, regardless of whether he then chooses to reinvest the funds. If the contributions were held in the name of a third party (such as a trust) and the employee was not able to dispose of the assets, the taxable event will be deferred until payment to the employee is effectively made.

Regardless of whether they are paid to the employee or not, earnings resulting from employees' contributions are subject to income tax when they become available to the employee. The employer is required to deduct the income tax from the employees' pay at source and remit it to the tax authorities.

The amounts to be contributed by the employees under the pension plan from their salaries is not subject to income tax withholding on its payment, as these amounts are subject to income tax withholding at the time of payment of the corresponding salaries.

 
12. Are there any other applicable tax charges on schemes?

Contributions made by both the employer and employee are subject to the personal assets tax when those contributions become available to the employee.

Depending on where the funds are held, these could be subject to an additional tax. For example, the tax on credits and debits on a checking account will apply at the time the funds are transferred from a foreign bank account to the local bank account of the employees.

Business transfers

13. Is there any legal protection of employees' pension rights on a business transfer?

Transfer of accrued pension rights

Whether transferred as a result of a bulk transfer or by way of an assignment, employees involved in a business transfer have a right to maintain their working conditions before the effective transfer.

This means that the assignee or transferee must acknowledge the employees' seniority and all related rights (for example, salary, pension rights, vacation entitlement) and maintain all existing terms and conditions of employment. Employees whose terms and conditions are not maintained can consider themselves constructively dismissed or bring a suit in court to request the reinstatement of their original employment conditions.

Other protection for pension rights

Argentine employment law has specific provisions regarding acquired rights, which includes a prohibition to any detrimental changes to the essential terms and conditions of employment. The retirement scheme would be considered part of the essential terms and conditions of employment, and so there is no opportunity to introduce detrimental changes or eliminate the plan.

Participation in pension schemes

14. Can the following participate in a pension scheme established by a parent company in your jurisdiction:
  • Employees who are working abroad?

  • Employees of a foreign subsidiary company?

Employees working abroad

Employers working abroad, but continuing to be enrolled with the Argentine subsidiary, can continue to participate with the local plan. Employees who leave the payroll of the Argentine subsidiary cannot participate in the subsidiary's scheme.

Employees of a foreign subsidiary company

Employees who are not under the payroll of the Argentine subsidiary cannot participate in the subsidiary's plan.

Employer insolvency and overall scheme solvency

15. Is there any protection provided for pension scheme benefits where the sponsoring employer becomes insolvent? If so, who provides the protection, and how does this operate? If the scheme itself is underfunded, are there any funding obligations on connected or associated legal entities?

There are no specific provisions or protections when the sponsoring employer becomes insolvent.

 

Online resources

Infoleg Legislative Information (Infoleg Información legislativa)

W www.infoleg.gov.ar

Description. Documentary and legislative information area.

Documentary and Information Centre of the Ministry of Economy and Public Finance

W www.mecon.gov.ar

Description. Information from the Ministry of Economy and Public Finance.



Contributor profiles

Daniel Orlansky, Partner

Baker & McKenzie

T +54 (11) 4310 2273
F +54 (11) 4310 2299
E Daniel.Orlansky@bakermckenzie.com
W www.bakermckenzie.com

Professional qualifications. Lawyer, Argentina

Areas of practice. Labour & employment; pensions & social security.

Languages. Spanish, English

Professional associations/memberships.

  • City of Buenos Aires, President of the Employment Law Committee of the Association of Lawyers of the City of Buenos Aires.

  • City of Buenos Aires, Member of the Buenos Aires Bar Association.

  • Province of Buenos Aires, Member of the Province of Buenos Aires Bar Association.

  • Member of the Argentine Association of Labour, Employment and Social Security Law.

  • Member of the Human Resources Committee of the American Chamber of Commerce in Argentina.

  • Member of the Consultative Committee of Legal Matters for the internet publication of Thomson Reuters (La Ley).

Publications.

  • Author of the Argentine Chapter of the "International Labour and Employment Laws Book", an ABA sponsored publication.

  • Author of the Argentine Chapters of the "Worldwide Guide to Termination, Employment Discrimination, and Workplace Harassment Laws", the "Worldwide Guide to Trade Unions and Works Councils", and the "Global Mobility Handbook", all Baker & McKenzie sponsored publications.

  • Co-author of XpertHR's International Manual on Labour & Employment Law in Argentina.

Felipe Graham, Associate

Baker & McKenzie

T +54 (11) 4310 2294
F +54 (11) 4310 2299
E Felipe.Graham@bakermckenzie.com
W www.bakermckenzie.com

Professional qualifications. Lawyer, Argentina

Professional associations/memberships.

City of Buenos Aires, Member of the Buenos Aires Bar Association.

Member of the Argentine Association of Labour, Employment and Social Security Law

Areas of practice. Labour & employment; pensions & social security.

Languages. Spanish, English, French

Publications.

  • Co-author of XpertHR's International Manual on Labour & Employment Law in Argentina.

  • Author of numerous articles regarding news in Argentina, published in the quarterly magazine "Global Employer", a Baker & McKenzie sponsored publication.


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