The MPF offsetting mechanism: employers could use contributions against severance

This article is a rewrite of a report from May 2012.

Nearly 12 years into MPF, an Employment Ordinance “offsetting” provision let employers use the accrued benefits of their mandatory contributions to offset severance or long service payments owed to staff. Many workers only half-understood the MPF offsetting mechanism.

How did offsetting work?

Take an employee made redundant after 10 years: severance totalled HK$10,000 × 10 years = HK$100,000 (capped at HK$390,000). Using 28 February as the “later wage period” cut-off, the offsettable amount = the employer’s contribution accrued benefits on 28 February × the relevant ratio. With HK$30,000 of benefits and a 1/1 ratio, the employer only topped up HK$100,000 − HK$30,000 = HK$70,000, with the benefits transferring to the employer. If benefits already equalled or exceeded HK$100,000, the employer paid nothing more — and the employee got no extra severance.

Two cases were “un-offsettable”: one, long service payment on retirement at 65; two, long service payment on retirement below 65 (but not under 60) — neither could be offset against employer-contribution benefits.

Which account funded the offset?

First, the accrued benefits in the contribution account holding the employer’s contributions; if insufficient, the employer’s voluntary-contribution account benefits (normally not usable against employee voluntary contributions); if still insufficient, the employer made up the difference in cash.

Offsetting existed to avoid “double benefits” — so employers didn’t pay both MPF contributions and full severance. Workers needed to know: the employer-contribution portion of their account could be claimed for offsetting when they were let go.