Employers, Do You Have a Central Severance Pay Fund? You Should Read This

In the past, many employers made use of a central severance pay fund.

However, the legislative amendments to pension laws enacted back in 2008 prescribed that, as of January 1, 2011, employers must deposit severance pay allocations for all employees solely in a personal severance pay fund. Additionally, the amendments prescribed that employers were only allowed to continue depositing in a central severance pay fund for long-term employees who began working prior to 2007.

As a result of this legislative amendment, there has been a steady decline in the use of central severance pay funds over the last decade.

In 2017, the Israel Tax Authority published a circular addressing the use of accumulated balances in central severance pay funds, and many employers began liquidating these severance pay funds.

It is important to note that the liquidation of a central severance pay fund also has implications on labor relations with your employees. Consequently, if you have begun liquidating a fund with the assistance of an accountant or pension advisor, we recommend to contact legal advisor to reduce your employment costs and liabilities.