Report on Institutional/Operational Arrangements - Proposed Employment Insurance (EI) System in Malaysia John Carter October 2, 2013

Agenda Where are we now? Suggestions for: 1.Responsibility for Overall Policy Development; 2.Responsibility for Administration of UI Fund; 3.Responsibility for pillar one: Employment Insurance System (EI); 4.Responsibility for pillar two: Active Labour Market Policies (ALMPs); 5.Responsibility for pillar three: Acknowledgement of Tenure (Savings Account – SA)

Agenda (continued) Human Resource Requirements; Costing Requirements; Feasibility of Pillar 3 (Savings Account); Monitoring and Evaluation Conclusion

Where are we now? September 2012: Consensus to conduct feasibility study on scenarios 2 and 3; Scenario 2: Pillar 1 (EI) and Pillar 2 (ALMPs) Scenario 3: Pillar 1 and 2 and Pillar 3 (SA) March 2013: conducted study of potential institutional arrangements; September 2013: Reports issued for actuarial, legal and institutional concerning feasibility study.

Chronological Listing of Activities when Employment has been terminated for EI purposes EmployerPays monthly contributions for employer and employee Employer or Insured PersonTERMINATIO N OF EMPLOYMENT EmployerIssues a letter of termination OR a Record of Employment Insured PersonRequired to register for employment soon as possible after termination of employment Insured PersonReport to department responsible for EI system to apply for EI benefits Department Responsible for EI system Processes application for EI benefits – assessment, calculation, decides on entitlement - payment Department Responsible for EI payment Receives and actions decision to issue payment Unemployed WorkerOngoing Entitlement interview: required to report to designated office once a month for job seeking ALMPsJob Matching, workshops on job search and resume writing, counselling, mobility assistance, skills training

Staffing Requirements for Scenario 2 (pillar 1 and 2 only) DepartmentFunctionStaffing ManagementDecision MakersClerical Staff *(RM5,300)*(RM4,000)*(RM2,600) SOCSOBenefits Collection09050 Other functions (e.g. accounting) Monthly Job Seeking Activities SOCSO RTW Selection and Referral SUB-TOTAL Jobs MalaysiaRegistration Job Counseling0500 SUB-TOTAL Dept of LabourMobility Assistance0500 SUB-TOTAL0500 DSDReferral to Training050 SUB-TOTAL050 TOTALS TOTAL SALARYRM159,000RM3,260,000RM884,000 OVERALL TOTAL1,185 STAFF GRAND SALARY TOTALRM4,303,000 (monthly) - RM51,636, (yearly)

No.Project Management ScopeEstimates for an Enhancement to Current System Development 5 Year Maintenance TOTAL 1.Project Management Office6,000, ,000, System Integration System25,000, ,000, Procurement Consultant Services2,000, ,000, Independent Tester Services5,000, ,000, Application Development25,000, ,000, Development Hardware2,500, ,000, Staging and Production Hardware25,000, ,000, Peripherals5,000, ,000, Infrastructure (Data Centre, Disaster Recovery Centre, Intranet and Internet) 50,000, ,000, TOTAL145,500, ,500, ,000,000.00

Costs - Rough Order of Magnitude Estimates for Scenario 2 No.ActivityResponsibilityCost Estimates 1. Computer System - For all functions under pillar 1 and 2 SOCSO IT RM228,000, Jobs Malaysia IT5,000, Dept of Labour IT2,000, DSD IT300, Office Expansion IssuesSOCSO20,000, Jobs Malaysia3,000, Dept of Labour100, DSD.00 3.Staffing (Yearly)SOCSO36,087, Jobs Malaysia9,600, Dept of Labour2,400, DSD240, Services and SuppliesSOCSO14,700, Jobs Malaysia4,275, Dept of Labour750, DSD75, TOTAL RM 326,527,000.00

Feasibility of Pillar 3 (Savings Account) Issues raised in Actuarial Report: Employer portion of SA would be base on rules which mimic those already apply for retrenchment benefits and therefore would not be of significant value to workers since the employer portion of savings would, in most cases, revert to employer; High cost incurred to produce adequate compensation; savings under this scheme would also be redundant to the existing EPF; There are also practical, design and administrative issues concerning two separate processes under the EI system.

Feasibility of Pillar 3 (Savings Account) continued Legal Report also raises issues with Pillar 3 within scenario 3: Issue of fairness: most private sector workers along with employers would be paying into the savings account as well as the employer but they do not meet the rules of retrenchment; Raises significant concerns such as: If the plan is characterized as a savings plan, the beneficiaries of the plan have a property interest in the contributions made by them on their behalf. They must, accordingly, have access to their property at some point. Otherwise, their property may be characterized as having been expropriated without compensation, contrary to Article 13 of the Federal Constitution.

Staffing Requirements for Scenario 3 (pillars 1, 2 and 3 ) DepartmentFunctionStaffing ManagementDecision MakersClerical Staff (RM5,300)(RM4,000)(RM2,600) Costs for pillar 1 and 2 under either scenario is identical Pillar 3 SOCSO or EPFBenefits Collection Other functions (e.g. accounting) TOTALS351, TOTAL SALARYRM 185,500.00RM 4,820,000.00RM 1,014, OVERALL TOTAL1,630 STAFF GRAND SALARY TOTALRM 6,019, (monthly) – RM 72,234,, (yearly)

Costs - Rough Order of Magnitude Estimates for Scenario 3 No.ActivityResponsibilityCost Estimates 1. Computer System - For all functions under pillar 1 and 2 SOCSO IT RM228,000, Jobs Malaysia IT5,000, Dept of Labour IT2,000, DSD IT300, Office Expansion IssuesSOCSO20,000, Jobs Malaysia3,000, Dept of Labour100, DSD.00 3.StaffingSOCSO (Pillar 1 and 2)42,636, SOCSO or EPF (Pillar 3)14,118, Jobs Malaysia12,840, Dept of Labour2,400, DSD240, Services and SuppliesSOCSO (Pillar 1 and 2)14,700, SOCSO or EPF (Pillar 3)4,650, Jobs Malaysia4,275, Dept of Labour750, DSD75, OVERALL TOTALRM 355,084,000.00

Monitoring and Evaluation Why a monitoring and evaluation system: – Need for good governance; – Need to assess whether targets are achievable; – Need to eventually propose corrective measures when targets are not achieved; IT will play a major role in ensuring there is an effective infrastructure to produce the necessary statistical information; Key performance Indicators: A key element in measuring performance of a UI system is the identification of effective key performance indicators. KPIs help organizations responsible for income support systems (e.g. UI system) to understand how well they are performing in relation to their strategic goals and objectives.

Monitoring and Evaluation (continued) Measured results could include: – Coverage (legal or effective); – Adequacy of benefits; – Operational matters; – Financial matters; – Beneficiaries satisfaction. Some examples of KPIs: – Speed of service in processing claims; – Accuracy of payment; – Percentage of employers paying contributions on time; – Results of investments of UI fund. IN FUTURE: could implement quality monitoring program and focus on the accuracy of benefit payment or the full administration of a claim for benefit including the processing of the application and final decision.

Conclusion Recommended to proceed with Scenario 2 – that is, an EI system along with Active Labour Market Policies; “It’s a conservative, prudent and low cost option. Benefits are modest, the maximum duration is low, entitlement requirements are sensible (still in the limit prescribed by international labour standards) – all of which can be compared to some other countries which provide much more generous benefits. The low prevailing unemployment rate is of course a major reason why the costs of EI are low for Malaysia”. M. Bedard