The Retirement Benefits Act of 1997 was enacted by the Parliament of Kenya and became effective on Nov. 20, 1997. It established the framework for a national social security system and a regulatory authority over a private sector retirement benefits industry.
Retirement Benefits Authority
The Retirement Benefits Act of 1997 provides for the establishment of a Retirement Benefits Authority (RBA), a national corporation with a board of directors, headquartered in Nairobi, that regulates and supervises the creation and administration of retirement benefits plans. It advises the Prime Minister on government policy pertaining to retirement plans and administers approved policies. Its members are appointed by the Prime Minister and can serve for a maximum of two four-year terms.
Retirement Benefits Levy
The minister, in consultation with the RBA, determines the amount of contribution that employers collect from their employees. These amounts are deposited into a trust fund, called the Retirement Benefits Authority Fund (the Fund), within 15 days of collection. These contributions go into various security or investment plans (called “schemes") that are regulated and monitored by the RBA and approved by the Treasury.
Retirement Benefits Schemes
A retirement benefits scheme is similar to a mutual fund in that it is a private, independently managed pool of investment funds. Managers of these schemes must be certified by the RBA. Each scheme must be approved by the Treasury through a registration process and meet certain investment viability criteria. It is up to the employee to choose the scheme into which he wants his contributions to go. Each scheme must submit financial reports to the board. A scheme may be deregistered if it violates any of the rules established by the act. The trustees of a deregistered scheme may appeal the ruling through an appeals process in front of an Appeals Tribunal.
Insurance companies manage 70 percent of the retirement benefits schemes. Schemes are permitted by law to invest 100 percent of their assets in guaranteed funds offered by the insurance industry. It is the goal of the act to require that insurance companies compete with other investment funds in an open, accountable and transparent manner.
The act stipulates that all benefits under the plan must fully vest within one year. This means that if a member (employee) leaves his job for any reason after one year of employment, he retains the contributions he made into his retirement benefits scheme along with the matching contributions of his employer. Prior to one year of employment, the employee retains only the contributions he made directly. When an employee changes jobs, he may transfer all his retained benefits to another scheme of his choice. The employee will have access to her retirement funds upon reaching the retirement age of 55, or younger if she retires early for reasons of ill health. If the member has any complaint about how her scheme is being managed, she can file a complaint in writing with the RBA, which has the authority to render final and binding resolutions. There is no charge for using the RBA’s services.
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