Severance Pay Will Have to Be Reserved Outside the Company: 100+ Employees From 2028, Under 10 by 2030, So Check Your Company's System First
Many companies still keep severance pay only on their own books. With the government's "pension function strengthening plan" released at the end of October, a schedule has emerged for requiring employers to set that severance money aside with a financial institution outside the company. Based on press reports of the announcement, this guide covers when the requirement starts, which workplaces it reaches first, and what an employee should check now.
What changes with mandatory external reserves
Today, a company that uses the plain severance-pay system may keep the money inside the company. Only companies enrolled in a retirement pension (DB or DC) have money accumulating at an outside financial institution.
The core of the plan is that every workplace would set aside its severance funds at a financial institution outside the workplace. Reports describe the aim as keeping the money safe if the company runs into trouble or closes, and so preventing unpaid severance.
From 2028 for 100+ employees, down to under 10 by 2030
Reports describe three steps: 2028 for workplaces with 100 or more employees, 2029 for 10 to 99, and 2030 for fewer than 10.
By 2030, every workplace, including those with fewer than 10 employees, would be covered. No bill has been tabled yet, so the steps and thresholds can change during National Assembly debate.
Older schedules you may have heard of, such as "100 or more from 2027," came from earlier proposals. The figures in this plan are the ones to go by now.
According to reports, the government aims for a bill in mid-November and passage in December. The requirement does not start next year but in 2028.
Even so, once the law is set, how a company handles severance pay will change, so it helps to know now which system you were hired under.
What happens to companies that are not ready
Reports say a workplace that has still not adopted a system by the time the requirement applies would be enrolled automatically in the Small and Medium Enterprise Retirement Pension Fund ("Blue Seed"). A budget of 30 to 40 billion won was mentioned to support very small workplaces.
For people at small companies, that means external reserves could begin whatever the owner chooses, but the details will be settled in the bill.
A new fund-type pension is coming
The plan also includes a fund-type retirement pension, in which a professional manager pools the reserves of many workplaces. Three types were presented: a financial-institution open type, an association type, and a public-institution open type.
Protections mentioned include shifting the burden of proof so the trustee must show it was not at fault, and an operating-risk reserve (0.25 percent in the reports).
On returns, the plan would shift provider evaluation toward returns, publish a ranking of about 40 providers, and move the default option's start from "four weeks after maturity" to "two weeks before maturity."
Your right to severance does not change
External reserves are about where the money is held, not whether you qualify. The standards of at least one year of service and at least 15 hours a week stay as they are.
As stated in the February labor-management-government agreement, the direction is to keep options such as early withdrawal and lump-sum receipt the same as today, and the reserve requirement is said to apply from service after it takes effect. Check the wording once the bill is out.
For what to do if severance payment is late, see our guide to labor inspectors investigating unpaid wages directly, and for how it is calculated, see how bonuses factor into severance pay.
Severance system, DB and DC: what is different
Under the severance-pay system, the company calculates and pays at retirement, and whether it sets money aside depends on the company's situation.
Under DB, you receive your average pay just before retirement multiplied by years of service, and the company reserves the money at an outside financial institution. Under DC, the company pays at least one twelfth of your annual total pay into your account each year, and you manage the investment.
This requirement is meant to move companies on the plain severance system toward external reserves, so employees already in DB or DC will see little change right away.
Three things to check now
First, use your employment contract or HR notice to confirm whether your company uses the severance-pay system, DB, or DC. You can also see enrollment through the Financial Supervisory Service's integrated pension portal or your pension provider's app.
Second, remember that severance should be paid within 14 days of leaving, and the default is to receive it in an IRP account. The exceptions are in our guide to the IRP transfer rule.
Third, if you ever worked without a written contract, keep materials that show you were an employee, as in our guide to claiming severance without a contract.
Order of steps
Step one is to confirm your company's severance system. Step two is to follow the bill's submission and passage in November and December. Step three is to work out, by company size, when you would become covered after 2028.
This article summarizes reported government announcements as general information and is not legal advice or a substitute for consultation on an individual case. Confirm details with the Ministry of Employment and Labor and the final bill text.
All content is fact-checked under our editorial standards.