Main Changes to the Integral Law of the Pension System

1. People who can join the system (Art.9)

Employer Contribution

Implication for the employers:

They must quote for a greater number of employees if they have hired foreigners residing in
El Salvador or Salvadorans residing abroad.

2. Increase in the contribution percentage of the employer (Art. 16)

Employer Contribution

Implication for the employers:

The employer’s contribution increases by 1% for each employee, which will substantially increase the total amount of monthly AFP contributions.

Important to remember:

The following are not part of the contribution base income:
1. Gratuities and occasional bonuses.
2. Christmas bonus.
3. Viatics, presentation and social costs established by the Law.

3. Obligation to continue paying contributions even in the case of pension
employees (Art. 13)

Pension employees

All the employees must be retained and declared in the pension contribution forms, regardless of whethere:
1. They are pensioners.
2. They are in retirement age but not pensioned.
3. They have total disability by first dictum.
4. They have a partial disability by first or second dictum.

Implication for the employers:

1. They must contribute for a higher amount of people and this payment will not be
   returned, unlike the employee.
   2. In case the employer decides not to continue with the labor relationship (provided
   that the employee does not have a guarantee of labor stability or their contract is not
   suspended), they must pay their respective labor settlement, since retirement is not a
   cause for termination without liability.

Implication for employees:

Pension employees would also be affected because with the new law, unlike the previous
one, they would apply for an AFP retention of 7.25%, although the amount contributed to
their individual savings account for pensions and his accrued profitability will be returned
annually.

4. Elimination of maximum contribution limit (Art. 14)

Contribution’s limits

Implication for employees:Elimination of maximum contribution limit.

Implication for the employers:

Tendrá que cotizar por cantidades mayor para trabajadores que tengan salario superior a $7,045, ya que no hay límite máximo de la cotización.

Implication for employees:

For employees with a salary higher than $7,045, since there is no contribution limit, they
would contribute the 7.25% of their real salary instead of the $7,045 limit.

5. Obligation to pay employer’s subsidy contributions (for incapacity or
maternity) (Art. 16)

Employer’s quote of subsidies

Implication for the employers:

They would have to contribute for higher amounts, since they would have to pay the 8.75%
of the respective subsidy amount.

Examples:

A. Maternity’s Case: According to the Art. 28 of the Regulations for the Application of the
Social Security, the ISSS would cover 100% of the employee’s average contributable base
salary

Examples:

B. In case of an incapacity due to an accident or professional illness: According to the Arts.
27 & 32 of the Regulations for the Application of the Social Security, only 75% of the
employee’s average contributable base salary will be covered, starting from the day after it
happened.

Examples:

C. In case of incapacity for illness, accident or common illness: According to the Arts. 24 &
27 of the Regulations for the Application of the Social Security, only 75% of the employee’s
average contributable salary will be covered, as of the 4° day.

Other important aspects of the law

Contribution Statements and Payments:

The Statement and the payments are made during the first 10 days of the following month in
which the income is earned.
More specifically, the dates on which payments have to be made are:

Retirement age (Art. 96)
Retirement age is maintained:

Pensions:

Additional Changes

1. The possibility of withdrawing 25% of the contributions is eliminated.
   2. The amount of old-age pension is increased by 30%, based on the calculation of the
   original pension. This only applies to people who have not withdrawn the 25% or
   who, having withdrawn it, have paid it completely.

Example

If the member receives US$500.00 in pension, the reform would increase this amount
by 30%, so that in total the member would receive US$650.00

In the case that a member has withdrawn the 25% previously allowed and the member has
not paid anything, the member would only be entitled to a 5% increase in his pension.

Procedure in case of omissions or inconsistencies (Art. 22)

1. The AFPs will notify the employer for omissions or inconsistencies within 20
   working days after the accreditation period.
   2. The AFPs will notify MINTRAB on a quarterly basis about the employers that have
   not corrected the omissions or inconsistencies.
   3. The MINTRAB will carry out inspections and in case of non-compliance,
   certification would be issued to the AFPs and the debt will be determined within 20
   working days from receipt of the certification.
   4. The employers will have 10 working days to elaborate, present declarations and make
   the respective payment.
   5. In case of not doing so, the AFPs will initiate the collection actions in accordance
   with Art. 23.
   6. If the MINTRAB inspection determines that the employer has people under labor
   subordination who are affiliated to the pension system, it will demand their affiliation
   within 10 working days.

Sanctioning framework for employers (Art. 143 y 144)

Failure to comply with the obligation to submit the contribution statements to the system.

Sanctions:

1. If the declaration is presented outside the time established by law, for a maximum of
   20 days, the fine will be 5% of the contributions.
   2. If it is presented in a period exceeding 20 days, the fine will be 10% of the
   contributions.
   Presentation of the declaration in an incomplete or erroneous manner may cause serious
   damage in the member’s individual account.

Sanction:

Sanctioning framework for employers

Absolute omission to pay contributions.

Sanction:

Fine: 20% of the unpaid contribution + late payment surcharge of 2% for each month or
fraction. It should be noted that this will be paid in addition to the contributions and profits
that the members ceased to receive.
Payment of an amount less than the corresponding contribution within the established time
limit.

Sanction:

Fine 10% of the unpaid contributions + 5% late payment surcharge for each month or
fraction.
It should be noted that this will be paid in addition to the profits not received by the members.

Entities responsible for imposing sanctions (Art. 146)

Superintendencia del Sistema Financiero, prior notice from the Administradora de Fondo de
Pensiones in the cases previously mentioned.
In the cases of administrative and judicial collection the Administradora de Fondos.

Applicable Legislation

Ley de Supervisión y Regulación del Sistema Financiero.
More information: crodriguez@consortiumlegal.com