Private funds for paying labor compensation come into effect like in the US

The national government took a new step to launch the Labor Assistance Funds (FAL) created by the labor reform and regulated the financial assets in which resources destined for severance payments and voluntary retirements can be invested.

The measure was established through a resolution from the Ministry of Economy published in the Official Gazette and is key to completing the scheme that will begin to operate from November 1.

The regulation determines which instruments can be included in the funds, what levels of liquidity the managing entities must maintain, and what limits will be set to avoid excessive concentration of investments.

What the funds for severance payments can invest in

The FAL can invest exclusively in Argentine financial instruments or negotiable securities, always denominated and payable in pesos. The regulation excludes investments in foreign currency and instruments issued abroad.

The money can be placed in four major categories: national government debt, provincial debt and debt of the City of Buenos Aires, deposits in financial entities authorized by the Central Bank, and negotiable obligations of private companies issued in Argentina.

Additionally, the instruments must meet certain security requirements. In the case of negotiable obligations and provincial debt, they must have public offering authorization, be traded in markets authorized by the National Securities Commission, and have a AAA risk rating granted by at least two rating agencies registered with the CNV.

The regulation also allows for instruments with fixed-rate returns, wholesale TAMAR rates, inflation adjustments through CER, or mechanisms linked to the dollar, in addition to certain dual bonds.

The government established limits to diversify investments

The resolution sets specific limits to reduce concentration risks.

The FAL can place up to 15% of their assets in deposits from the same financial entity, while the investment in provincial debt and the City of Buenos Aires will have a general limit of 15%, with a maximum of 5% per jurisdiction.

In the case of negotiable obligations, the limit will be 20%, although no issuer can represent more than 10% of the fund.

The instruments denominated dollar-linked, tied to the evolution of the exchange rate, will have a limit of 10%.

Furthermore, the banks managing these funds cannot invest in instruments issued by themselves, their controlling entities, subsidiaries, or related companies, except for certain operational exceptions.

The FAL must maintain a liquidity floor

One of the central points of the regulation is the obligation to maintain at least 10% of the assets of each FAL in high liquidity and low market risk assets.

Among these instruments are sight deposits, pre-cancellable fixed terms, and short-term National Treasury bills.

The goal is to ensure that there is money available when a company must face the payment of a severance.

If the liquidity level falls below 10% as a result of benefit payments, the managing entity will have 90 calendar days to recover the minimum established percentage.

How the new severance payment system will work

The labor reform established that private employers must make monthly contributions to these funds to cover future severance payments and voluntary retirements.

The contribution will be 1% for large companies and 2.5% for SMEs, according to the scheme established by the reform.

The money will be transferred to the ARCA and subsequently directed to the bank or settlement and compensation agent chosen by the company to manage its FAL.

Companies can choose between funds specifically managed for them or multi-company funds that group contributions from different employers.

The accumulated money will have a specific destination: to pay severance for dismissal or voluntary retirements. It cannot be used for other purposes.

Banks and ALyCs will compete to manage the funds

The regulation also opens a new possibility for competition within the financial system, as banks and settlement and compensation agents (ALyC) will be able to manage the FAL.

The fee charged by the managing entities will have a cap of 1% of the managed funds.

Additionally, "portability" is provided, allowing a company to transfer the fund managed by one entity to another if it finds better investment conditions.

However, the company must deposit the full monthly contribution into a single FAL and cannot divide it among different entities.

A new step in the labor reform

The regulation of investments completes a central part of the scheme designed by the government to modify the financing system for labor severance payments.

With specific investment rules, concentration limits, and a mandatory liquidity floor, the Executive aims for the funds to preserve the contributed capital and remain available when the time comes to face a severance payment.

The CNV will now have 45 calendar days to issue the necessary complementary and clarifying regulations to fully implement the system.

In this way, the government advances with one of the central components of the labor reform, aiming for the Labor Assistance Funds to begin operating from November 1.