Amendments to the Social Security Law

Amendments to the Social Security Law

Baker & McKenzie

Social Security

Today, the Senate approved the amendments made to Articles 277 D and 286 K of the Social Security Law and three Transitory Articles, with the purpose of correcting the Retirement and Pension System of the Mexican Social Security Institute (“RPS”), applicable to the unionized employees of that institute.

1. Article 277 D is amended at the end of the fourth paragraph indicating that for the establishment, substitution or hiring of a vacancy, the necessary resources to cover future costs resulting from the RPS shall be deposited in the Fund for the Fulfillment of the Labor Obligations of Legal or Contractual nature (the “Fund”).

2. Article 286 K is amended in its first paragraph, to establish that the purpose of the Fund above mentioned will be to obtain the necessary resources at the moment of the employee retirement. The second paragraph remains the same, except for the addition that indicates that within the Fund the “obligations” for the RPS should be registered separately.

A third paragraph is added to Article 286 K, in which it is stated that the Mexican Social Security Institute (“IMSS”) will not be able to transfer to the Fund the social security contributions paid by the employers and employees, neither the contributions at expense of the Federal Government or the reserves of the IMSS.

3. The Second Transitory Article states that the employees and pensioned employees of the IMSS who currently have this condition, will enjoy the same benefits of the RPS and will keep contributing to it in the same conditions. The IMSS will keep fulfilling its obligations with charge to the social security contributions, independently from the formalities that the parts agree between them.

4. The Third Transitory Article states that the employees that become part of the IMSS after the entrance in full force and effect of the relevant decree, as a result of the establishment, substitution or hiring of vacancies, and that are not subject to the statute, should contribute with the necessary resources to the special account of the RPS, and cover the premium required in the form and terms that the IMSS determines.

5. The amendment project only modifies the way the Fund operates, which in fact has never operated properly, and establishes that the IMSS cannot transfer the social security contributions, the contributions of the Federal Government, neither the IMSS reserves, to the special account for the RPS. The problem found in this modification is that it does not indicate where the funds will come from.

In addition to all this, in the Second Transitory Article it is reiterated the obligation of the IMSS to continue paying the pensions, in accordance with the current terms, that represent the most important cause of the critical financial situation of the IMSS, leaving only as alternative the possibility of modifying the RPS only by the agreement between the parties, notwithstanding that the IMSS would have the legal right to present a Collective Conflict of Economic Nature before the Federal Labor Board to correct its serious situation, basically generated by the RPS, the high labor cost and the employees lack of productivity.

Finally, it is important to mention that the Third Transitory Article, that pretends to correct the conditions of the employees that in the future will become part of the IMSS, is not clear, since a modification to the Collective Bargaining Agreement is required, in order for the RPS as now appears, not to apply to the unionized employees of new entrance.

As a result of the foregoing, the amendment project does not correct in a substantial form the serious financial situation of the IMSS generated by the RPS and it only pretends to correct an administrative situation as to how the Fund needs to be handled, with the major mistake of not pointing out where the resources to cover the pension system would come from. For what it is foreseen, unfortunately in a short term it will be claimed that again, all the employees and employers pay the exaggerated manner in which the IMSS employees will be pensioned.

In order to enter into effect, the approved amendment has to be previously promulgated and published in the Federal Official Gazette by the President, who still has the faculty of vetoing the decree and sending it back to the Congress for an additional analysis.

By Baker & McKenzie

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