The Government regulated Unemployment Insurance as an alternative to severance pay

The national government is moving forward with the implementation of the Optional Employment Termination System Laboral, provided for in the Bases Law, with the regulation of a new instrument:  the Employment Termination Insurance. The measure was made official through a resolution published in the Official Gazette and enables employers and employees to replace the traditional severance pay established in the Employment Contract Law with insurance contracted with authorized insurers.

This new tool is added to the option already regulated by the National Securities Commission (CNV), which allows the use of Mutual Funds as a vehicle to establish the termination fund.

How the new insurance will work

The Employment Termination Insurance will be voluntary and may be agreed upon within the framework of collective bargaining or individually. Its operation will be based on periodic contributions made by the employer, which will be deposited into accounts in the name of each employee within an insurance company. Those funds will be used exclusively for the payment of severance in the event of dismissal or termination, as provided for in the applicable collective agreements.

Additionally, the employee may make voluntary contributions to an individual account with free availability. All money accumulated from employer contributions will be unseizable and may only be released in the event of a formal termination of the employment relationship.

Regulated investments and guaranteed returns

The scheme provides that insurers may invest the accumulated funds in regulated portfolios in order to generate additional returns, even offering a guaranteed minimum return. The National Insurance Superintendency (SSN) will be the authority responsible for overseeing the solvency of insurers and the prudent management of risks.

The approved model is based on already existing structures in the market, such as Group Life Insurance with a savings component or Group Retirement Insurance, which allows for rapid implementation with technical support.

A product agreed upon with the private sector

The regulation arose after a process of dialogue between the SSN and insurance sector chambers, including AVIRA (Association of Life and Retirement Insurers of the Argentine Republic). The entity highlighted that this new insurance is part of the labor modernization process promoted by the Government and that its development seeks to provide predictability, transparency, and formalization to the labor market.

AVIRA also emphasized that the product will allow internal savings to be channeled into the capital market, benefiting productive financing and strengthening the role of the insurance market as a channel for savings.

Main features of the Employment Termination Insurance

• Periodic employer contributions to individual accounts in the name of employees.
• Voluntary employee contributions to a freely available account.
• Unseizable funds, releasable only in the event of employment termination.
• Regulated investments and the possibility of a guaranteed minimum return.
• Direct supervision by the SSN over insurers and contractual compliance.
• Compatibility with additional coverage such as life insurance.

Potential impact and challenges

With the regulation of this new instrument, the Government is deepening its strategy to modernize the labor system, reduce litigation, and provide greater financial predictability for both employers and employees.

Nevertheless, its adoption will depend on collective bargaining, since its application is optional and doesn't automatically replace the traditional severance regime.