Companies must be compliant with law

In the second half of 2010, the Office of the Complaints Commissioner reported that, by the end of 2009, there were over 600 employers in the Cayman Islands delinquent in some way in relation to their pension responsibilities, and these were only the reported cases. It would be a difficult task to argue that the Cayman Islands pension system is not in a state of serious disrepair, a long held belief by a majority of the population and now supported by the Office of the Complaints Commissioner.

The question is: has the introduction of the pension holiday added to employer confusion or added legitimacy to unscrupulous employers’ past practices?

The pension holiday

In the Cayman Islands, the National Pensions (Amendment) Law 2010 provides an administrative framework for those employers and employees that agree to participate in the pension holiday. To qualify, the law requires the agreement to be in writing and subsequently approved by the pension administrator. The administrator must ensure that employer pension contributions are up-to-date prior to approving the agreement.

Rogue employers who make a conscious effort to avoid making pension contributions may, in their own minds, have earned some legitimacy out of the pension holiday; but spare a thought for those employers who have kept contributions up-to-date yet still fall foul of the law, innocently or otherwise.

Breaching the law

Employers not conversant with the requirements of the law will, in certain circumstances, be in breach of it. For example, what if an employer, at the request of its employee(s), decided to take advantage of the pension holiday, went through the process but fell short at the last requirement, failing to have the agreement approved? The answer is of course that the employer is now delinquent and acting contrary to the law.

In such circumstances, the employer faces up to $10,000 in fines on summary conviction. The employer subsequently becomes, in the eyes of the law, no different from those employers who consciously flout their responsibilities. Is there any way out?

The law provides no discretion; employers are either compliant or not. If not compliant and eventually caught, there is an array of consequences that could have a dramatic effect on companies in Cayman. As previously stated, the employer may be subject to a significant fine may encounter difficulties with immigration authorities, including obtaining and extending work permits and in its dealings with the Trade and Business Licensing Board.

Ensuring pension practices are legal

The simple option open to employers who want to legalise their pensions practices is to ensure that their contributions are up-to-date. Employers who have made private agreements with employees during the pension holiday must rectify the matter with the National Pensions Office. Only then will the employer be in a position to legitimately apply to the fund administrator to take part in the Holiday. However, time is running out and redemption opportunities are becoming increasingly limited.

Having been in operation now for nine months, the pension holiday is at the three quarter mark for Caymanians and over one third of the way through for non-Caymanians. The bleak report from the Officer of the Complaints Commissioner highlighted multiple issues within the pension system and the way in which it is regulated in the Cayman Islands.

These issues will take some time and effort to work through. In the meantime, instances of employees retiring with no pension will continue to arise as they find out all too late that their employer failed to contribute to their pension fund. It is yet to be seen whether or not the advent of the temporary pension holiday amendment has provoked further employer default within an already ailing regulatory system.

Seeking advice

It is important for employers to know whether they are compliant to ensure that fines are not imposed. As every case is unique, it is wise to consult a qualified professional who is experienced in this area and is best equipped to provide solid and reliable advice.

This publication is intended only to provide a summary of the subject mattered covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice.