In the relocation process the employer-employee relationship between the worker who is sent and the Israeli company that sent him/her is often severed, which could seriously harm the security of the employee’s and his/her family’s pension. Adopting proper policies and employee training can prevent this damage.

Sending an Israeli abroad for a relocation period usually involves dismissing the employee from the company in Israel and severing the employer – employee relationship. This trend, which has been around for many years, has become a standard pattern over the past decade. According to a survey conducted by ORI In 2010, nine out of ten workers sent for relocation are dismissed from the Israeli company and employed by a local company in the destination country.

What has changed in the past decade is the tax policy (tax reform of January 2003) which changed the tax base from territorial to personal and so increased both the company’s and the employee’s motivation (influenced heavily by tax consulting on the issue) to establish the destination country as the “center of interest” of the employee and to sever all ties with Israel.

 “Black Holes” in the Pension Insurance

One of the major disadvantages of severing the employer – employee relationship is the pension security of the employee going on a relocation mission. Employee pension security in Israel is acquired through insurance plans and managers’ pension funds and includes three components: pension savings, disability insurance and life insurance. Severing employer – employee ties usually results in ending the employee pension plans in Israel, and that has a number of important implications:

• Termination of pension savings for several years creates a “black hole” that will eventually harm the employee during retirement. 

• In the case of work disability during relocation – he/she will not have suitable insurance coverage. While most companies acquire local disability insurance plans for overseas workers, these plans are usually useless, since they require the employee to remain in the country where the insurance was issued in order to be eligible for work disability allowance, while it is clear that the first thing the employee will do in the case of disability is return to Israel (in most cases it would be inevitable due to the visa the worker has). 

• Another problem with life insurance and work disability insurance issued abroad is that in most policies issued by foreign companies, the insurance company exempts itself from liability if the incident occurred in an area defined as a terror zone. Needless to say, Israel’s classification on this issue definitely falls under that category, and the employee will continue to come to Israel during the relocation – both on business trips and on home visits. 

• When the employee returns to Israel and wants to open a new pension plan – he will be required to pass medical tests. If tests reveal that during the relocation he developed a chronic disease, it will be excluded from the insurance coverage and the employee will be left without effective life and disability insurance. 

Take Responsibility for the Employee

Given these exposures, the organization and its human resources manager can adopt one of two principle approaches:

The “Opportunistic” approach: “the employee is a grown man who knows what he/she is facing and what his/her options are and he/she can, if he/she so wishes, continue paying into the pension insurance program on their own.” A human resources manager who adopts this approach can stop reading the article at this stage. It is recommended, though, to take into account that not many Israeli companies pass the “widow on the management steps” test – an Israeli company can declare again and again that it is the responsibility of the employee. In practice, most Israeli companies cannot afford to abandon an employee in a catastrophe.

The “committed” approach: “It’s true that we fired the employee – but we didn’t really dismiss him …” This approach acknowledges the reality that any significant problem that arises regarding the Israeli worker – comes back to the sending company.

If the company adopts this approach it is recommended to consider the following steps:

• Professional advice – to provide professional advice regarding the employee’s pension insurance during his/her relocation abroad. It has been our experience that such advice increases the confidence of the employee with regard to the relocation abroad and significantly increases the chances that he will take the right steps regarding this issue. 

• Adjusting the insurance basket – to adapt the “insurance basket” of the employee to the special needs of employees on a relocation mission. Most companies run their local Israeli employee company in the destination country without checking what the benefits of local pension insurance are and without trying to adapt them to the fact that the Israeli worker has special needs on this issue. For example, in many cases you can find disability insurance policy coverage even if the employee does not stay in the country where the insurance was issued. 

• Alternative social savings {voluntary) – encourage the employee to maintain an alternative social savings plan during the period of relocation. In many countries there are local plans of voluntary pension savings (as a –the 401 (K) plan in the US, a UK pension plan and the CPF plan in Singapore). Savings in such plans can compensate, somewhat, for the lack of continuity of pension savings in Israel. 

• Alternative social savings (statutory) – inform the employee of his rights in statutory pension savings in the destination country. In many countries there are local statutory pension savings plans (such as the Superannuation plan in Australia, the pension insurance plan in Germany, the provident fund in India, US Social Security). The employee should be aware of accumulated rights in these plans and of the options to utilize them. 

• Saving the “risk”– instruct the employee to keep the “risk” framework (life insurance and disability insurance) of the directors insurance (possible, in most cases, for a period of four years) and/or the pension fund (limited period of two years.) It’s true that such a case weakens the claim of the employee’s severance from Israel. On the other hand, to this day there has not been even one case of an Israeli expatriate who was required to pay taxes on the period of residence abroad because he maintained his life insurance and his work capacity insurance in Israel.