General Regulations of the INJUPEMP Law

PURPOSE. The purpose of this Regulation is to regulate the provisions contained in the LAW OF THE INSTITUTE FOR RETIREMENTS AND PENSIONS OF EMPLOYEES AND OFFICIALS OF THE EXECUTIVE BRANCH, enacted by Decree No. 357-2013 of the National Congress of the Republic, on the thirty-first day of January of the year two thousand fourteen, reformed by Decree No. 130-2014 of December 4, 2014, published on May 14, 2015.

SCOPE. This Regulation establishes the general provisions that must be observed for the correct functioning of the Institute, related to the form of administration, correct operative functioning and control environment; as well as matters relating to procedures for processing and granting of benefits established in the Law, which are mandatory for all participants and for State Institutions incorporated into INJUPEMP. Any procedural act not expressly regulated in this Regulation shall be resolved in accordance with the provisions issued by the Assembly of Participants and Contributors of the Institute in matters of its competence, the Directory of Specialists, and other applicable regulations on the matter. CHAPTER II DEFINITIONS

For purposes of the use and application of this Regulation, the following definitions and meanings of terms shall be used:

• 1)

  Affiliation: The act by which a public servant becomes incorporated into the Pension Institute, following compliance with the requirements of Law.

• 2)

  Contributions: The sum of money that periodically the employer must contribute to INJUPEMP and those that the voluntary participant makes to the Institute, to cover the corresponding employer portion.

• 3)

  Assembly Members: Refers to the Assembly of Contributors and Participants of INJUPEMP.

• 4)

  Benefit: Any pension benefit or service provided by the Institute to its Participants.

• 5)

  Beneficiaries: Any person or persons that directly or indirectly receive benefits from the Institute.

• 6)

  Designated Beneficiaries: The person formally named or designated as such by the Participant, in accordance with articles 86 and 87 of the INJUPEMP Law.

• 7)

  Legal Beneficiaries: The person or persons who, in the absence of designated beneficiaries, shall receive in accordance with the Law the corresponding benefit due to the death of the participant.

• 8)

  Commission: The National Commission of Banks and Insurance, known by its acronym CNBS.

• 9)

  Spouse: Man or woman who form part of a marriage legally recognized by the State of Honduras.

• 10)

  Contributions: Sum of money that the participant periodically deposits to the Institute and that is deducted from their contributory salary. This includes the sums of money that by way of exception the participant who has voluntarily joined deposits.

• 11)

  Directory of Specialists: The superior body of administration and execution of INJUPEMP.

• 12)

  Actuarial Equilibrium: It is when the present value contingent of benefits granted and to be granted, plus any other obligation that implies an actuarial cost for the Institute, equals the value of equity reserves, plus the present value contingent of future contributions and quotas.

• 13)

  Fund: Set of accumulated economic resources, product of contributions, quotas, interest and others, resulting from the operations of INJUPEMP and that constitute the assets of the Institute.

• 14)

  Incorporation into the Institute: The act by which employees of a body or entity of the public sector become legally incorporated into INJUPEMP.

• 15)

  INJUPEMP or INSTITUTE: Refers to the National Institute for Retirements and Pensions of Employees and Officials of the Executive Branch, as a whole subject to a part of its organization, according to the context in which the term is used.

• 16)

  State Institutions: The Institutions of the Powers of the State; Decentralized, Deconcentrated Institutions and Municipalities; and other Public Law Institutions of the State that are created and do not belong to the category of entities within the sectors previously related.

• 17)

  Invalidity: Situation of total and permanent incapacity, physical or mental, whereby the individual has lost more than sixty-five percent (65%) of their functional capacity, whether from contingencies derived from occupational hazards or from other common causes.

• 18)

  Participant: Any person who by virtue of the Law is protected by the Institute or maintains expectations of re-entry.

• 19)

  Active Participant: Any person who is working in the public sector and is duly registered with the Institute, in accordance with the Law.

• 20)

  Inactive Participant: Any person who ceases to work in an incorporated Institution and who has been granted the benefit of separation.

• 21)

  New Participant: Participant who became affiliated with INJUPEMP as of May 13, 2014.

• 22)

  Pre-existing Participant: Participants who when the Law came into effect were already protected by the Institute as active, suspended or voluntary participants.

• 23)

  Suspended Participant: Any person who ceases to work in an incorporated Institution and does not exercise their right to the benefit of separation.

• 24)

  Voluntary Participant: Any person who, exercising the right granted by the Law, contributes voluntarily to the Institute in the time and manner provided in the Law, by means of a written request submitted to the Legal Department of the Institute, after ceasing to work in an incorporated Institution.

• 25)

  Pension: Income paid monthly to the participant or beneficiary who has the right in accordance with the Law.

• 26)

  Qualifying Period: The contributions required in a determined period of time to qualify for the right to each of the benefits established in the Law.

• 27)

  Monthly Base Salary (SBM): Monthly average of Real Salaries (SR) calculated based on all their salaries subject to contribution, where the cap shall not be less than sixty percent (60%) of the minimum wage upon the coming into effect of the Law, adjusted based on the year-over-year variation observed in the consumer price index published by the competent authority.

• 28)

  Real Salary (SR): Remuneration resulting from adjusting the salaries subject to contribution to the Institute, considering the inflationary effect on the same, taking as a basis the Consumer Price Index (IPC) published by the competent authority. The formula to be applied shall be: SRj = SSCj * IPC current / IPCj where j corresponds to the contribution date.

• 29)

  Reference Salary: It is the average of the salaries of all active participants, of the immediately preceding year, considering a working day of eight (8) hours.

• 30)

  Salary Subject to Contribution (SSC): Nominal monthly remuneration that the participant earns, which serves as the basis for calculating employer contribution and individual quota. The following do not constitute salaries subject to contribution: amounts received occasionally and by mere liberality by the affiliate and what is given to them in cash or in kind for representation expenses or other purposes to perform their specific service, additional bonuses and compensation for overtime work. The SSC may not exceed four (4) times the Reference Salary.

• 31)

  Technical Rate: It is the Rate of Return adjusted for inflation or taking as a basis the Consumer Price Index (IPC), used for the application of actuarial calculations of the Institute.

• 32)

  Common-Law Union: The existence of a common-law union between a man and a woman with capacity to enter into it and that meets the requirements of singularity and stability, against all effects of marriage performed legally, when recognized by competent authority.

• 33)

  Free Union: Marital relationship between man and woman, without being married. CHAPTER III AFFILIATION TO INJUPEMP

MANDATORY AFFILIATION, EXCEPTIONS, AND CASES OF CONTRACT EMPLOYEES. In accordance with articles 3 and 4 of the INJUPEMP Law, affiliation to the Institute is mandatory for all public servants working in bodies or entities of the State, Decentralized, Deconcentrated Institutions and Municipalities; and other State Public Law Institutions that are incorporated into INJUPEMP. The following are exempted from the mandatory nature of affiliation: public servants who provide occasional professional services, by virtue of term contracts and public servants who have protection provided by other social security pension institutes or plans, financed by the State. Notwithstanding the foregoing, those participants who on the date of entry into force of Legislative Decree No. 357-2013, that is May 13, 2014, were active affiliates of INJUPEMP and on that date had continued working uninterruptedly under the term contract modality and therefore their contributions and payments to INJUPEMP have also been continuous, maintain their status as active participants of the Institute and therefore maintain their rights and obligations as such. If the participant who enjoyed the right granted in the preceding paragraph, for any reason interrupts work and therefore also interrupts their contributions and payments to INJUPEMP, shall cease to be considered as an active participant. The participant shall be considered again as an active participant in any of the following two cases:

• a)

  The participant works again under the permanent employee modality in an Institution incorporated into INJUPEMP;

• b)

  The participant chooses to voluntarily affiliate with the Institute, within the period established in the Law, and subsequently works again under the permanent employee modality in an Institution incorporated into INJUPEMP, contributing and paying according to what is expressed in the Institute Law. In this case, after voluntarily affiliating, it is necessary that their contributions and payments have not been interrupted for longer than what is established in article 30 of the Law. In any case, incorrect or irregular affiliation, as well as its corresponding contribution and quota, supposes no expectation for the acquisition of rights or enjoyment of any benefit; in this case, such affiliation does not constitute a legal bond or nexus that may be invoked against the Institute and the contributions made by the employee shall be considered as improper.

PAYMENT OF ACTUARIAL DEFICIT. In accordance with what is established in article 5 of the Law, the incorporated Institutions or those that in the future become incorporated, shall be responsible for payment of the actuarial deficit that implies the recognition of years of service comprised between the time of Incorporation to INJUPEMP and the time they choose for the recognition of seniority to their employees, provided that such period may not be prior to January 1, 1976; said actuarial deficit shall be determined by means of an Actuarial Study prepared by the Division of Actuarial and Statistics of the Institute, in accordance with the technical criteria that shall be approved by the Assembly with the approval of the Commission.

INCORPORATION AND YEARS OF SENIORITY. For purposes of what is established in the second paragraph of article 5 of the Law, State Institutions that request their incorporation shall include all their employees who by virtue of Article 4 of the Law have the right to be protected by the Institute; likewise, in accordance with the payment capacity of the requesting Institutions, they may request the recognition of seniority for all their employees, prior to monetary payment of the totality of the actuarial deficit that corresponds. When full payment is not made at the time of incorporation, the recognition of years of service shall be in accordance with the technical criteria approved by the Assembly with the approval of the CNBS, and in the same proportion of the partial payment received by the Institute.

BASIS FOR CALCULATING SSC. To estimate the maximum basis for calculating the salary subject to contribution referred to in article 30 of the Law, the adjustment shall be made based on the Consumer Price Index established by the competent authority, taking the index value considered for carrying out the revaluation and adjustment of pensions and the value of the index at the moment prior to the cessation of work of the participant. Each year, such maximum contribution basis shall be adjusted by the Institute and the voluntary participant may make contributions and quotas, based on the salary subject to contribution that is equal to or less than such adjusted value, for which the participant must make the request in written form.

VOLUNTARY AFFILIATES. In compliance with what is established in numeral 19) of article 2 of the Law, Participants who are affiliated voluntarily must make their payments through the means that the Institute establishes for such purpose, and that are notified to the participant in time and form.

DEFAULT OF VOLUNTARY PARTICIPANTS. The Voluntary Participant who does not make payments of contributions and quotas within the period established in the last paragraph of article 30 of the Law, shall pay an effective rate of two percent (2%) monthly compounded from the moment they should have been deposited to the Institute on the amount owed. CHAPTER IV OF THE ASSEMBLY AND THE DIRECTORY OF SPECIALISTS

ALTERNATES TO THE ASSEMBLY. By virtue of what is established in the sixth paragraph, article 10, reformed, of the Law, the members of the Assembly of Participants and Contributors of INJUPEMP established in numerals 5), 6) and 7) of article 8, reformed, of the same Law, may have an alternate representative for each principal member duly accredited by each of the three organizations, and elected in accordance with the bylaws of each organization.

INTERNAL REGULATION OF THE ASSEMBLY. The organization, powers and functions of the Assembly of Participants and Contributors shall be those established in articles 8 and 9 of the INJUPEMP Law. The organization and functioning of the Assembly shall be governed by what is established in its respective Internal Regulation.

INTERNAL REGULATION OF THE DIRECTORY. The powers and functions of the Directory of Specialists of INJUPEMP shall be those established in article 18 of the INJUPEMP Law. The organization and functioning of the Directory shall be governed by what is established in its respective Internal Regulation. CHAPTER V OF THE RESPONSIBILITY OF ADMINISTRATIVE BODIES

REQUESTS FOR INFORMATION. For purposes of complying with what is established in articles 23 and 90 of the Law, the entities that control and supervise the Institute, or others that the Law empowers, may make requests for information on those matters that are within their competence, and the same shall be required through the official channels established for this purpose and by means of a written request to the Director Specialist President. The provision of information referred to in this Article must be in accordance with what is established in the Law on Transparency and Access to Public Information, INJUPEMP Law and other regulations that are applicable to the Institute. CHAPTER VI REFUND OF CONTRIBUTIONS AND QUOTAS

REQUEST FOR REFUND. The reimbursement or refund of improper contributions and quotas received by the Institute, in accordance with what is established in Article 31 of the INJUPEMP Law, shall be made upon formal request presented by the State Institution affected, or in its case, upon formal request of the participant or their legal representative. The Institute shall recognize for the refund of improper contributions and quotas the inflationary effect on them, taking as a basis the Consumer Price Index (IPC) published by the competent authority, as an interest rate. Contribution to refund = Contribution * IPC current / IPCj Where: j = date of improper contribution IPC = Consumer Price Index The same procedure shall be applied to improper quotas.

REFUND IF THERE IS SALARY CONSOLIDATION. For purposes of what is established in Article 34 of the INJUPEMP Law, regarding salary consolidation and when the Salaries Subject to Contribution (SSC) exceed what is established as maximum in Article 2, numeral 24) of the same Law, the determination of the amounts to be refunded for improper contributions and quotas, including their respective interest, shall be established according to the following formula: Di = (Ci + Aj) * E * Pj Where: Dj = Amount to be refunded to employer i. Aj = Amount contributed by employer i contributions. Cj = Amount quoted by participant i contributions. E = (1 - (T / SCM)) * 100 is the excess of contributions and quotas received by the Institute. SCM = maximum amount of salary subject to contribution. Pj = percentage that corresponds to the salary subject to contribution of the employer institution i. T = SSCj +...+ SSCn is the sum of the salaries subject to contribution involved. Pj = SSCj / T * 100 SSCi = salary subject to contribution of employer i. The Institute shall recognize for the refund of the excess contributions and quotas due to salary consolidation the inflationary effect on the same, taking as a basis the Consumer Price Index (IPC) published by the competent authority, as an interest rate. The formula used shall be the same as that expressed in article 14 of this Regulation. CHAPTER VII OF INTERNAL AUDIT

INTERNAL AUDITOR SELECTION. In order to comply with the provisions of numeral 37 of article 18 and article 94, both of the INJUPEMP Law, the selection process of the Internal Auditor of the Institute must be standardized with the procedure established according to the Law of the Court of Accounts and its Regulation, and the Governing Framework for Internal Auditing of the Public Sector.

ORGANIZATION OF INTERNAL AUDITING. For compliance with articles 93, 95 and 97 of the Law, the Institute must establish the Internal Audit Unit (UAI) under an organizational structure in accordance with the type of UAI established in the Governing Framework for Internal Auditing, with sufficient and necessary technical personnel to perform the functions established in the Law.

RESPONSIBILITIES OF INTERNAL AUDITING. For compliance with the provisions of Article 98 of the Law, the Internal Auditor is jointly and severally liable with the author or authors of the decisions and execution carried out by the Institution, based on the work performed within their attributions and faculties conferred by the Institute Law, the Court of Accounts Law and other applicable Laws.

IDENTIFICATION DOCUMENTS. In accordance with the provisions of Article 102 of the Law, the Identity Card issued by the competent authority is considered an official document so that the rights derived from the Law can be exercised; however, the Specialist Board may implement biometric systems for the identification of participants and their beneficiaries.

RIGHT TO EARLY PENSION IN SPECIAL CASES. In relation to participants who may retire early, by way of exception established in the third paragraph of article 50 of the Law, to exercise the right to the benefit the following table shall be applied: AGE COMPLETED DURING THE YEAR 2013 | VOLUNTARY RETIREMENT AGE | MINIMUM TIME OF SERVICE 48 or more | 50 | 10 47 | 51 | 10 46 | 52 | 10 45 | 53 | 10 44 | 54 | 10 43 or less | 55 | 10

RECOGNIZED FUNERAL EXPENSES. For compliance with the benefit established in article 72 of the Law, the expenses recognized by funeral assistance are the following:

• 1)

  Preparation of the deceased;

• 2)

  Purchase of coffin;

• 3)

  Purchase of burial lot;

• 4)

  Opening and closing of grave, including concrete slabs needed for burial;

• 5)

  Tombstone;

• 6)

  Burial or cremation of the deceased;

• 7)

  Transport of the deceased;

• 8)

  Rental of venue, chairs, candelabra and utensils necessary for the wake;

• 9)

  Permits and legal procedures;

• 10)

  Repair of deceased;

• 11)

  Food expenses and other items (up to 15% of the maximum amount established in article 72 of the Law). For the determination of the amounts to be reimbursed, the presentation of receipts issued in accordance with current tax legislation will be necessary. When the amount of funeral expenses that are applicable for recognition exceeds the maximum established in article 72 of the Law, preference shall be given to reimbursement of expenses in numerals 1 through 10.

SINGLE PAYMENT FOR DISABILITY. For compliance with the single payment established in numeral 2 of article 55 of the Law, the participant who requests the granting of the benefit of Disability pension with partial assistance, as applicable, must submit a payment request accompanied by a detail of the destination of the amounts of the disability assistance that must be in direct relation with their Disability situation, and which shall be evaluated by the Institute's Disability Committee for its ruling. Notwithstanding the provisions of the preceding paragraph, the Disability Committee may recommend the granting in single payment, without the participant presenting the detail mentioned above, based on the necessity determined by the Committee based on the aggravation of the participant's disability.

DISABILITY COMMITTEE. In accordance with the provisions of article 61 of the Law, the Disability Committee of the Institute shall be composed of at least: 1.- The person holding the position of Head of the Benefits Division of the Institute or their duly appointed representative, who shall preside over the Committee. 2.- Three physicians with different specialties, strategically selected to rule on the appropriateness of the disability pension benefit in each case. The aspects related to the functioning of the Committee shall be regulated by the Benefits Regulation and other rules approved by the Specialist Board of the Institute.

MONTHLY BASE SALARY (SBM) FOR SURVIVOR PENSIONS. For the determination of the SBM in the case of survivor pensions referred to in article 65 of the Law, the following formulas shall be applied, as applicable: 1. Monthly Base Salary for Deaths in Active Service, Voluntary or Suspended (SBMma) SBMma = (Σⁿₖ₌ₙ SRⱼ) / n 2. Monthly Base Salary for Retirees by Old Age and Deceased Since the Law's Effective Date (SBMpvd) SBMpvd = [(Σⁿₖ₌ₙ SRⱼ) / n × MIN(2.75% × ts, 90%)] + Σᵢ RP 3. Monthly Base Salary for Retirees by Disability and Deceased Since the Law's Effective Date (SBMpid) SBMpid = [(Σⁿₖ₌ₙ SRⱼ) / n × 70%] + Σᵢ RP 4. Monthly Base Salary for Deaths of Retirees by Old Age Before the Law's Effective Date (SBMpva) SBMpva = [(Σⁿₖ₌₋₃₆ SN) / 36 × MIN(2.75% × ts, 90%)] + Σᵢ RP 5. Monthly Base Salary for Deaths of Retirees by Disability Before the Law's Effective Date (SBMpia) SBMpia = (USSC × 80%) + Σᵢ RP Where: j = Contribution Date m = Death Date of Active, Voluntary or Suspended Participant p = Retirement Request Date k = USSC Date n = Base Calculation Months SRj = SSCⱼ*IPCⱼ₍ₘ₎ / IPCⱼ SSC = Salary Subject to Contribution IPC = Consumer Price Index RP = Annual Increases During the Life of the Pension f = Year of Last Annual Increase Before Death USSC = Last Salary Subject to Contribution ts = Time of Service SN = Nominal Salary

TECHNICAL INTEREST RATE FOR SEPARATION BENEFIT. For the determination of the amount of the separation benefit established in Article 73 of the Law, the technical interest rate that will be used for the financial update in determining the single payment shall be implemented using the rates recorded in the "Tables of Weighted Nominal Profitability Rates" that are approved by the Commission, and likewise with the corresponding annual updates. For the purposes of determining the annual weighted nominal profitability rates, administrative expenses and the coverage of survivor and disability insurance must be considered, which shall be calculated using methodologically updated actuarial methodologies. In relation to the procedure for the calculations applicable to the single payment corresponding to the separation benefit, the guidelines and the necessary mathematical formulas must be carried out based on the Technical Note prepared by the Institute, and which shall be previously approved by the Commission.

RETIRED PARTICIPANTS WHO SUSPEND PAYMENT OF THEIR PENSION AND CONTRIBUTE AND REMIT TO INJUPEMP TO INCREASE THE AMOUNT OF THEIR PENSION. In accordance with Article 83, as amended, of the INJUPEMP Law, retired participants by old age who have suspended payment suspension to work in an Institution incorporated to INJUPEMP may once again contribute and their employers remit to INJUPEMP under the same contribution and remittance conditions applicable to active participants. Likewise, INJUPEMP shall continue to make the deductions that by Law the participant is obligated to pay, such as payment of loan installments, agreements and similar obligations. Once the employment relationship with the Institution incorporated to INJUPEMP is terminated, the participant retired by old age may request the reactivation of their pension. INJUPEMP shall calculate the increase to the pension considering the Monthly Base Salary parameters including additional salaries contributed in accordance with Article 122 of the INJUPEMP Law and years of service and the replacement rate of 2.75% in accordance with Article 52 of the same Law. The new amount of the pension shall be the sum of the amount of the pension at the time of suspension of payment plus the increase resulting from the aforementioned calculation. Notwithstanding the foregoing, INJUPEMP must also calculate the amount of the revalued pension in accordance with the parameters established for retirees in Article 117 of the INJUPEMP Law and using the criteria applicable to the retired participant. If the amount of the revalued pension is greater than the amount calculated in accordance with this article, their pension shall be activated with the same value received at the time of suspension plus the corresponding revaluation, and INJUPEMP shall proceed to reimburse the participant their contributions made during the suspension period, applying the same procedure used by INJUPEMP to reimburse improper contributions.

PRESENT VALUE FOR APPLICATION OF ARTICLE 123 OF THE LAW. The comparison that must be made to comply with the provisions of Article 123 of the Law shall be carried out using the interest rate obtained as the weighted annual profitability rate of the Institute's investments, determined as of December of the last year prior to the date of submission of the request. Once such comparison is made, and in the event that there is an amount in present value in favor of the participant's beneficiaries, the granting of the benefit shall be by means of monthly payment of the annuities that would have corresponded to the guarantee of granting of 120 annuities, or a single payment whenever requested by the beneficiary using the interest rate obtained as the weighted annual profitability rate of the Institute's investments, determined in December of the last year prior to the date of submission of the request. This provision may be applied in whole or in part, according to the proportional distribution of the different beneficiaries or legal heirs as applicable.

REGULATIONS, MANUALS AND TECHNICAL NOTES. The pension benefits and services that INJUPEMP provides in accordance with its Law shall be regulated by the Benefits Regulation, Loans Regulation and other Regulations, Manuals and Technical Notes that are approved in the manner provided in such Law.

SANCTIONS REGULATION. For the purposes of the provisions of Articles 91, 113, 114 and other applicable articles of the Law regarding violations of this normative and its subsidiary provisions, the Assembly shall approve the corresponding Special Sanctions Regulation.

This Regulation shall enter into force after its publication in the Official Gazette, The Gaceta. Given in the City of Tegucigalpa, municipality of the Central District, on the ninth day of the month of May in the year two thousand sixteen. COMMUNICATE AND PUBLISH.