Employee Capital Plans
What are Employee Capital Plans?
ECP – what is it? This abbreviation stands for Employee Capital Plans, i.e. a common long-term savings program aimed at supporting the savings system of employees and increasing their financial security after the end of their professional activity. Employee Capital Plans (ECPs) were introduced in Poland by the Act of 4 October 2018 on Employee Capital Plans (Journal of Laws of 2018, item 2215) as a supplement to the current pension system, especially in the context of expected lower social security benefits in the future.
Characteristics of the employee capital plan of the ECP
The ECP is a program based on the participation of three parties: the employed person, the employing entity and the state. Employed persons who are subject to mandatory pension and disability insurance are, as a rule, automatically enrolled in the scheme if they are over 18 years of age and under 55 years of age, unless they submit a declaration of resignation from making contributions to the ECP. People who are 55 years of age or older but under 70 years of age can join the program upon application. As a rule, the obligation to create an ECP applies to entities employing at least one person employed within the meaning of the ECP Act, taking into account the exceptions provided for in the regulations.
Running an ECP requires the employing entity to conclude two agreements:
- ECP management agreement — concluded with a selected financial institution;
- an agreement on the operation of the ECP — concluded with the same financial institution on behalf of and for the benefit of employees.
The financial institution should be selected in consultation with the company’s trade union organization, and in the absence of such a representative – with the representation of employees.
Saving and financing rules
Funds in the ECP are collected in individual accounts of participants and can be withdrawn after reaching the age of 60. In order to benefit from the capital gains tax exemption, the participant should withdraw the funds in the manner specified in the Act, e.g. 25% in a lump sum and the remaining 75% in at least 120 monthly installments. Contributions to the ECP are made monthly and include:
- the basic contribution of the ECP participant – generally 2% of the salary, with the possibility of declaring an additional contribution of up to 2%; participants with lower incomes can reduce the basic payment by up to 0.5% in certain cases;
- payment of the employing entity – a minimum of 1.5% of the salary, with the possibility of financing an additional contribution of up to 2.5%, i.e. a maximum of 4% in total;
- subsidies from the state – a one-time welcome payment of PLN 250 and an annual surcharge of PLN 240, after meeting the conditions provided for in the program.
ECP money is invested in funds of a defined date, i.e. funds tailored to the age of the participant. Their investment policy changes as the participant approaches the age of 60, so as to gradually reduce the level of investment risk. The funds accumulated in the ECP account are the private property of the participant and are subject to inheritance. In certain cases, the participant may also use them before the age of 60, m.in. in the event of a serious illness or to cover their own contribution on a mortgage loan. In the latter case, the withdrawal may cover up to 100% of the funds, but it applies to participants under 45 years of age and is associated with the obligation to return funds to the ECP account.
Running ECPs in the workplace
From the employer’s point of view, Employee Capital Plans (ECPs) mean the statutory obligation to implement the program, choose a financial institution and manage the ECP in accordance with the regulations. The basic duties of the employing entity include, m.in, concluding agreements related to the ECP, calculating and transferring payments, informing employees about the rules of participation and keeping documentation necessary for the proper operation of the program. PPK can function alongside other solutions, such as Employee Pension Schemes (PPE), but they are not identical to them.
For employees, participation in the ECP means the opportunity to systematically build private savings with the support of the employer and the state. The program is based on regular payments financed by the ECP participant, the employing entity and subsidies from the state. The funds accumulated in the ECP are the private property of the participant and are subject to inheritance, which reinforces their importance as an element of long-term financial security.
Benefits and challenges of ECPs – your future savings
The key advantages of the ECP include:
- the possibility of systematically accumulating additional savings for the future,
- financial support from the employer and the state,
- the private nature of the funds accumulated in the ECP account,
- inheritance of savings,
- automatic deposits that make it easier to save regularly,
- the possibility of using the funds in certain life situations, e.g. in the event of a serious illness or for an own contribution in a mortgage loan.
Among the challenges related to the ECP, we can point out the need to build trust in the program, educate participants and provide proper administrative services on the part of the employer. It is also important for companies to ensure compliance with regulations, timely payment calculations and effective communication with employees. Employers have specific information obligations towards participants, m.in. regarding the possibility of joining the program by people 55+ or the rules for reducing and declaring an additional payment.
Employee Capital Plans are an element of the long-term savings system, which supports the building of additional financial security after the end of professional activity. Thanks to the participation of the state, employers and employees, the ECP can be an important complement to future pension benefits. From the perspective of companies, PPK are part of a responsible employment policy and one of the benefits that can support employment stability and a positive image of the employer.
