Law on Recognition of Individual Contributions and Social Security Institutions Contributions

The provisions contained in this Law have as their principal purpose the regulation of the recognition of contributions and quotations that have been made by employers and affiliates to the respective Social Welfare Institutes, allowing the granting of complementary adjustments to the benefits established in the organic laws or regulations of each of the Institutes, within the framework of social welfare justice and the correct application of social security principles.

The following Social Welfare Institutes are subject to the provisions contained in this Law:

• 1)

  Honduran Institute of Social Security (IHSS);

• 2)

  National Teaching Profession Welfare Institute (INPREMA);

• 3)

  Military Welfare Institute (IPM);

• 4)

  National Institute of Pensions and Retirements of Executive Branch Employees and Officials (INJUPEMP);

• 5)

  Social Welfare Institute of Employees of the National Autonomous University of Honduras (INPREUNAHH); and,

• 6)

  Public Social Welfare Service Providers.

The National Banking and Insurance Commission (CNBS) must issue the regulations that establish the criteria for determining welfare programs or funds, financed partially or totally by a Public Sector institution, that classify as Public Social Welfare Service Providers and must comply with this Law. These criteria are established in the General Regulation of this Decree.

For the purposes of this Law, the following definitions must be considered:

• 1)

  AFFILIATE: Any natural person who by virtue of the Legal Framework is protected by a Social Welfare Institute or maintains expectations of re-entry.

• 2)

  SUSPENDED AFFILIATE: Any natural person who has contributed to a Social Welfare Institute and ceases to do so without having withdrawn their accumulated contributions from such Institute.

• 3)

  CONTRIBUTION: Amount of money that periodically the employer must contribute to a Social Welfare Institute, to cover the proportion of salary that in accordance with their Legal Framework corresponds to it. This concept includes those contributed additionally by the State as such, and the amounts of money that by way of exception enters the affiliate who has voluntarily accepted.

• 4)

  COMPLEMENTARY WELFARE BENEFIT: Is the monetary benefit that a Social Welfare Institute must grant, by virtue of what is established in this Law, to affiliates who maintain their contributions in the Institute and who are beneficiaries of a Principal Pension by another Social Welfare Institute, at the moment of meeting the minimum age requirement established for retirement by the Institute that grants the Complementary Welfare Benefit.

• 5)

  SEPARATION BENEFIT: Monetary value, in accordance with the Legal Framework, to which an affiliate is entitled who ceases to be protected by a Social Welfare Institute and who decides to separate temporarily or permanently from such Institute.

• 6)

  CONTRIBUTION: Amount of money that periodically affiliates must contribute to a Social Welfare Institute, to cover the proportion of salary that in accordance with the Legal Framework corresponds to them. This concept includes the amounts of money that by way of exception enters the affiliate who has voluntarily accepted.

• 7)

  UNIT CREDIT: Percentage for each year of service that each Social Welfare Institute recognizes for the calculation of the corresponding Pension.

• 8)

  THE COMMISSION OR CNBS: The National Banking and Insurance Commission.

• 9)

  LEGAL FRAMEWORK: The Legal Framework shall be understood to mean the organic laws and/or regulations specific to each Social Welfare Institute as appropriate.

• 10)

  SOCIAL WELFARE INSTITUTE OR INSTITUTE: The institutions listed in Article 2 of this Law.

• 11)

  PENSION: Income paid with monthly periodicity to the affiliate or beneficiary who has the right in accordance with the applicable Legal Framework, on occasion of old age, disability or survivorship.

• 12)

  PRINCIPAL PENSION: Is the pension for old age or disability granted by a Social Welfare Institute to its affiliates when it meets the minimum requirements established by its Legal Framework.

• 13)

  PUBLIC SOCIAL WELFARE SERVICE PROVIDER: Any welfare model, program or fund created by Law and financed partially or totally by a Public Sector institution.

• 14)

  REAL SALARY: Remuneration resulting from adjusting the salaries for which contributions were made to an Institute, considering the inflationary effect on them, taking as a basis the Consumer Price Index (CPI) published by the competent institution and calculated in accordance with the Regulation of this Law.

• 15)

  AVERAGE SALARY: Is the monthly average of Real Salaries, calculated on the basis of the last one hundred twenty (120) monthly salaries on which contributions were made to an Institute or the length of service that such Institute implements as the basis of calculation, provided that it is greater than one hundred twenty (120) monthly salaries. In case the number of monthly salaries as described is not reached, the Average Salary shall be calculated by the total salaries contributed.

• 16)

  RATE OF RETURN: Annualized effective interest rate of investments including the amount of loans, of the portfolio of a Social Welfare Institute.

• 17)

  FINANCIAL VALUES: Accumulated amount of Contributions made by the Affiliate to a Social Welfare Institute and the corresponding Employer Contributions, financially under a compound interest capitalization scheme, using the Rate of Return, from the moment they were made until the date the transfer is made to another Institute.

Persons who simultaneously perform functions such that mandatory affiliation to different Social Welfare Institutes is required, are obligated to select an Institute and notify in writing such Institute as well as the employers involved, together with the documentation that for such purposes is required, so that the Affiliate has Employer Contribution in only one Institute. Notwithstanding the provisions of this Article, the Affiliate may continue contributing voluntarily in those Institutes in which their Legal Framework permits voluntary contributions, provided that the totality of payments for contributions and corresponding employer contributions are financed from the Affiliate's salary, in which case they must maintain their benefits in such Social Welfare Institutes in effect.

Affiliates retired for old age of the Social Welfare Institutes who work in the Public Sector are in a state of incompatibility for the enjoyment of their pension, therefore they must notify in writing the Institute from which they receive the benefit, so that the latter proceeds to suspend the referred pension as long as the incompatibility persists. Said retired affiliates, as well as those retired for old age who hold a position in the Public Sector but to whom other laws are granting the benefit, must not be subject to individual contributions or employer contributions. In case amounts corresponding to contributions have been withheld from their salary, these must be considered improper and must be returned updated financially with the Rate of Return. Contributions made by retired affiliates made before the entry into force of this Law are recognized in the same way as with the minimum age requirement of publication established by the Legal Framework of the corresponding Institute. Notwithstanding the foregoing, Social Welfare Institutes must grant the Complementary Welfare Benefit provided that the Affiliate has contributed in at least one of the Institutes the minimum number of years established by its Legal Framework to have the right to the benefit of pension for old age or retirement or that such Affiliate is enjoying a Principal Pension granted by one of the Institutes. To determine the value of the Complementary Welfare Benefit, the contributions and employer contributions that the Affiliate has made in periods simultaneous to more than one Institute must be identified as well as those that were not made simultaneously. The employer contribution in simultaneous periods made by a public sector body or entity shall not be recognized.

When an Affiliate has made individual contributions and has been subject to non-simultaneous employer contributions, in the terms of the previous Article, they have the right to a complementary pension in the Institutes in which they have not received the Separation Benefit. For the calculation of the corresponding old age pension, the total percentage of unit credit established by the Legal Framework of the Institute to which contributions were made for the years credited only during non-simultaneous periods shall be considered, multiplied by the Average Salary defined in this Law, in accordance with the following formula: PC_ad = %C × a_ad × S Where: %C Unit Credit expressed as a percentage PC_ad Complementary Pension for non-simultaneous periods a_ad Years contributed in non-simultaneous periods provided that the employer contribution made by the Affiliate in voluntary condition or by the private sector employer. S Average Salary It corresponds to the Commission to validate and modify if necessary the formula to obtain the amount of the complementary pension. In case the Affiliate has contributions in both simultaneous and non-simultaneous periods, the contributions and employer contributions made during non-simultaneous periods must be taken into consideration for the calculation of the complementary pension, with the remaining ones proceeding as stipulated in Article 10 of this Law. In this case, the Complementary Welfare Benefit is equal to the sum of the Complementary Pension determined in accordance with this Article plus the benefit corresponding to them according to Article 10.

The totality of the Unit Credit is recognized for the calculation of the Complementary Pension, when the Affiliate has made for their account the full payment of the individual contribution and the Employer Contribution or when the Employer Contribution was made by a private sector employer, in both cases the amount of the Complementary Pension must be calculated in accordance with the previous Article. Otherwise, individual contributions simultaneous to more than one Social Welfare Institute generate to affiliates the economic benefit they choose between the (2) following options: Where: 1) Reimbursement of one hundred percent (100%) of the amounts made as contributions for the respective interests, considering the present value of the contributions made over time, assuming for such purposes an interest rate corresponding to inflation registered by the competent authority three months (3) percentage points; or, 2) Complementary old age pension, determined according to the unit credit recognized for the years contributed in simultaneous periods, multiplied by the ratio that results from dividing the Individual Contribution Rate by the sum of the Employer Contribution Rate and the Individual Contribution Rate, established by the Legal Framework of the Institute, in accordance with: %caC = %C × (t_i)/(t_a + t_i) %caC Adjusted Unit Credit expressed as a percentage %C Unit Credit expressed as a percentage. t_i Individual Contribution Rate as a percentage of salary t_a Employer Contribution Rate as a percentage of salary. To obtain the amount of the Complementary Pension, the unit credits adjusted as provided in subsection 2) of this Article shall be multiplied by the years of service credited in simultaneous periods by the average salary defined in this Law. PC_s = %aaC × a_s × S Where: a_s Years of service credited to the Institute that are simultaneous with another Institute PC Complementary Pension for simultaneous periods No Social Welfare Institute may grant benefits different from those established in this Law to an Affiliate on the basis of simultaneous employer contributions to more than one Institute.

Affiliates of one or more of the Social Welfare Institutes who do not meet the minimum requirements to enjoy a Principal Pension in any of the Institutes, but have contributed at least fifteen (15) years in non-simultaneous periods in one or more Institutes, have the right to request, upon reaching sixty-five (65) years of age, a lifetime pension actuarially equivalent to the sum of the Financial Values of all institutes in which they have contributed. The calculation or administration of the pension thus determined must be the responsibility of the Institute in which the Affiliate has the greatest number of years of service credited, provided that it is different from the Honduran Institute of Social Security (IHSS), in which case the administration must be the responsibility of the second Institute with the largest number of contributions received. The Affiliate must make the request to the Institute that corresponds according to the previous paragraph; such Institute must request the other Institutes to transfer the corresponding Financial Values to it, once deducted eight percent (8%) on the value of the contributions and employer contributions to cover administrative expenses. The procedure for the calculation of the actuarially equivalent pension must be defined in the Regulation of this Law, without in any way the amount of said pension being less than the minimum pension established by the Institute that carries out its administration, in which case the deficit incurred by the difference resulting from the calculation must be absorbed proportionally by each Institute involved, in accordance with the time contributed. The administering Institute must communicate to the involved institutes, if necessary, the additional values that they must transfer. Regardless of whether they have made the transfer of said additional values, the administering Institute must grant the Affiliate's benefits as they are entitled and must proceed administratively and judicially against the Institutes that do not transfer the corresponding values. In cases where the Affiliate does not meet the requirements for a Principal Pension, nor has contributed at least fifteen (15) years in non-simultaneous periods in one or more Institutes, they may contribute voluntarily in one of the Institutes in which they have contributions and the Legal Framework permits, using as the maximum value for the contribution base the last salary on which contributions were made, adjusted annually for inflation, to meet the minimum contribution time, otherwise they must be entitled to the Separation Benefit established by each Institute.

When an Affiliate of one or more of the Social Welfare Institutes is contributing to one of them and a situation of total and permanent incapacity, physical or mental, occurs, but does not have the right to a disability pension for not meeting the Qualifying Period in accordance with the provisions of the Legal Framework of such Institute, but has contributed to one or more of the Social Welfare Institutes at the time of presentation of the disability request and provided that they maintain their contributions in the same and are not enjoying a pension granted by these, they have the right to receive a Reduced Benefit for Disability that must be granted and financed by the Institute to which they are contributing. The evaluation and declaration of disability must be determined by the Disability Committee of the Institute to which the Affiliate is contributing and that has the requirements, being budgeted by the Honduran Institute of Social Security (IHSS), prior payment of said evaluation by the Affiliate. In case a disability greater than sixty-five percent (65%) is declared, the Institute to which an affiliate is contributing must reimburse itself for the evaluation expenses in which it has incurred. The Reduced Benefit for Disability consists of a pension paid upon the declaration of disability referred to above and whose amount must be equivalent to the disability pension to which they would have been entitled if they had met the Qualifying Period in accordance with the Legal Framework, but reduced by one percent (1%) for each month of contribution that the Affiliate lacked to complete said Qualifying Period, without in any case the percentage to be reduced being greater than twenty-five percent (25%). In case the benefit structure of the Institute grants an Auxiliary for Disability, the Affiliate must have the right to it but reduced in the same percentage as the disability pension.

Those who have complementary pensions, actuarially equivalent pensions and the Reduced Benefit for Disability have the right to the pension revaluations that the Institute carries out by virtue of its Legal Framework. Complementary Pensions cannot receive adjustment to reach the amount of the minimum pension established by the Institute.

When an Affiliate retired for one or more of the Social Welfare Institutes dies, their beneficiaries have the right to avail themselves of the benefits derived from the pension of greater amount that the Affiliate received or by which most favors their beneficiaries in accordance with their own interests, extinguishing any additional obligation on the part of the other Institutes. In case the pensions were financed by the Affiliate themselves in a voluntary condition or by a private sector employer, the beneficiaries have the right to receive simultaneously the survivorship benefit corresponding to such pensions and for up to the period that the pensions that were financed directly or indirectly by the State.

In case an affiliate contributing to more than one Social Welfare Institute dies, their beneficiaries have the right to avail themselves of the benefits derived from the pension of greater amount to which the Affiliate would have been entitled or by which most favors their beneficiaries in accordance with their own interests, the other Institutes must grant support for contributions to more than one Institute as described in Article 5 of this Law, having a period of six (6) months from the entry into force of this Law to select in accordance with their best interests the Institute by which they must be subject to contributions and employer contributions, otherwise when the period expires the National Banking and Insurance Commission (CNBS) must issue within the following two (2) months in the best interests of the contributing Affiliate. The National Banking and Insurance Commission (CNBS) must establish together with the Social Welfare Institutes a Joint Counseling Office to guide the decisions of affiliates that must operate for the purposes of the previous paragraph.

In the case of applications for granting complementary old age pensions and for recognition or for transfer of financial values in accordance with this Law, the Institutes must ensure that the service times credited for the calculation of the amounts of pension to be granted do not consider periods of employer contributions by state bodies or entities that are considered simultaneous contributions with other Institutes.

To affiliate applicants who have been granted benefits derived from Transfers of Actuarial Values, supported by final judicial rulings that correspond to decrees with effective dates prior to that of this Law, must not be granted benefits derived from this Law, except that there are contributions in the Institute in which they maintain contributions.

PENDING CASES FOR RESOLUTION UNDER DECREE No. 190-2000. The cases of requests submitted by affiliates that are pending resolution in the respective Institutes and whose requests were submitted during the validity of Decree No. 190-2000 dated October 30, 2000, must be resolved in accordance with what is established in the Regulation of this Law.

PENDING CASES FOR RESOLUTION UNDER DECREE No. 22-2004 AS AMENDED. The requests for Transfer of Actuarial and Financial Values that are in process at the time this Law enters into force and have not been resolved must be incorporated into the benefits established in this Law provided that the Affiliate so requests and withdraws their prior request. Likewise, the requests that have not been resolved due to the lack of an inter-institutional agreement, as established in the aforementioned Decree, must be resolved in accordance with what is determined by the Single Agreement on Transfer of Actuarial Values and the Regulation of this Law. CHAPTER IV FINAL PROVISIONS

TIME LIMIT TO ELECT SOCIAL WELFARE INSTITUTE. Affiliates who are contributing to more than one Institute as described in Article 5 of this Law have a period of six (6) months from the date this Law enters into force to select, according to their best interests, the Institute through which they must be subject to contributions and payments; otherwise, upon expiration of the deadline, the National Commission of Banks and Insurance (CNBS) must issue a determination within the following two (2) months in the best interests of the contributing Affiliate. The National Commission of Banks and Insurance (CNBS) must establish together with the Social Welfare Institutes a Joint Office to guide the decisions of the affiliates that must operate for the purposes of the preceding paragraph.

GRANTING OF PENSIONS IN COMPLIANCE WITH THIS LAW. In the case of requests for granting of supplementary pensions for old age and for recognition or for transfer of financial values in accordance with this Law, the Institutes must ensure that the periods of service credited for calculating the amounts of pension to be granted do not consider periods of employer contributions from organs or entities of the State that are considered simultaneous contributions with other Institutes.

INCOMPATIBILITY FOR THE APPLICATION OF BENEFITS. Requesting affiliates who have been granted benefits derived from Transfers of Actuarial Values, based on final judicial rulings that correspond to decrees with validity prior to that of this Law, must not be granted benefits derived from this Law, except where there are contributions in the Institute in which they remain affiliated.

INVESTIGATION OF CASES OF SIMULTANEOUS CONTRIBUTIONS. For such purposes, an Information Center will be created under the responsibility of the Commission, and it shall be mandatory for the Institutes and their administrative bodies to manage and exchange information among themselves and an articulated database, for the purpose of avoiding the simultaneity of employer contributions.

INSTITUTIONS NOT SUPERVISED BY THE COMMISSION. Public Social Welfare Service Providers must provide the information requested by the Commission for the purpose of guaranteeing what is provided in this Law. Likewise, such institutions must bear the expenses incurred by the Commission arising from compliance with this Article and from any study conducted on the pension funds administered by said Institutions, all in accordance with what is established in the Regulation of the Law, following prior negotiation between the parties involved.

ACTUARIAL EXPERT OPINION. In order for the state controlling entities and the Judicial Body to issue a resolution or judgment, as appropriate, regarding any discrepancy or conflict that arises with respect to the implementation of the provisions of this Law, the Commission, through its actuarial division, must be obligated to issue the various technical opinions that correspond and are required for such purposes.

RIGHT OF AFFILIATES IN SUSPENSION TO CONTINUE CONTRIBUTING TO THE INSTITUTE IN WHICH THEY ARE IN SUCH CONDITION. The Affiliate who has completed at least ninety percent (90%) of the minimum contribution period to be entitled to the benefit of old age pension in an Institute and who, due to a change in their employment relationship, must contribute to a different Social Welfare Institute, has the option to continue contributing to the Institute in which they have already contributed at least ninety percent (90%) of the minimum period established. The Affiliate who meets the aforementioned requirement and wishes to exercise this right must submit the request to their employer, so that the latter may coordinate jointly with the Social Welfare Institute to which they must contribute, to carry out the necessary actions so that said affiliate is not subject to contributions and payments to the said Institute. It is the employer's responsibility to confirm with the withholding of contributions from the salary of the requesting affiliate and together with the employer contributions that correspond to them, transferred to the Institute in which the affiliate meets the requirement provided for in this Article. Said Institute must be obligated to receive the transferred amounts and to generate the collection invoice to the employer with the amounts of contributions and withholdings, which must be calculated taking as a maximum reference the salary of the last contribution made in this Institute, adjusted to the historical salary increase rate of the Affiliate and taking into account the adjustment required due to the change in the contribution and payment rates of the different Institutes. In any case, the employer contribution cannot exceed the amount that would have corresponded to them in accordance with the contribution percentages of the Institute to which the employer is affiliated.

REGULATION. By virtue of the powers contained in its Law, the Commission must issue within a maximum period of sixty (60) business days, counted from the date this Law enters into force, the General Regulation of this Law. For which the National Commission of Banks and Insurance (CNBS) must take into account the participation of the Social Welfare Institutes; based on internationally standardized norms and principles, as well as national and international practices, uses and customs, ensuring that the rights of all affiliates in the Social Welfare Institutes covered by this Law are guaranteed.

REGARDING THE LAW ON TRANSFER OF ACTUARIAL VALUES. The Laws or Regulations of the Provisional Institutes within the scope of application of this Law that make reference to the Law on Transfer of Actuarial and Financial Values, must be understood to make reference to what is provided in this Law.

REPEAL OF PRIOR LAW. Decree No. 22-2004 as amended by Decree No. 350-2005 containing the Law on Transparency of Actuarial and Financial Values is hereby repealed, as well as any provision, regulation, or agreement subscribed between Social Welfare Institutes or Decrees issued by the National Congress that oppose this Law. The acts granted and authorized in accordance with the Law on Transfer of Actuarial and Financial Values and the agreements between Institutes must continue to be governed by such provisions until the end of the period for which they were granted.

EFFECTIVE DATE OF THE LAW. This Law shall enter into force twenty (20) business days after the date of its publication in the Official Journal La Gaceta. Given in the City of Tegucigalpa, municipality of the Central District, in the Hall of Sessions of the National Congress, on the fourteenth day of the month of October of the year two thousand fourteen. MAURICIO OLIVIA HERRERA PRESIDENT MARIO ALONSO PÉREZ LÓPEZ SECRETARY JOSÉ TOMÁS ZAMBRANO MOLINA SECRETARY To the Executive Branch. Therefore, Let it be executed. Tegucigalpa, M.D.C., December 5, 2014. JUAN ORLANDO HERNÁNDEZ ALVARADO PRESIDENT OF THE REPUBLIC THE SECRETARY OF STATE IN THE OFFICES OF LABOR AND SOCIAL SECURITY CARLOS ALBERTO MADERO ERAZO