What is an ORSO plan?
ORSO stands for “Occupational Retirement Schemes Ordinance“, and is Hong Kong’s 1993 law defining employer-sponsored retirement plans, similar to the American 401(k). Since 2000, Mandatory Provident Fund (MPF) retirement schemes have become the more popular and widespread solution for employers setting up a defined contribution workplace retirement savings plan, in part because more MPF master trust (i.e. multiple employer) schemes have been set up, but also because (as the name implies) MPF is mandatory for employers in Hong Kong. There have also been some recent warnings about inappropriate marketing of ORSO schemes as tax avoidance rather than bona-fide retirement schemes, which has unfortunately made things more difficult for honest employers who want to help their employees save for retirement. That said, it is still possible for employers to set up ORSO plans, and there are costs and benefits to doing so.
Reasons to set up an ORSO plan
The main reasons an employer may want to set up (or why a key employee may want the employer to set up) an ORSO plan are:
- The employer receives tax benefits for contributions made to an ORSO plan (see your trustee or tax professional for details).
- The employer can impose a vesting schedule on these contributions, placing a form of “silver handcuffs” on valuable employees that should be encouraged to stay long-term.
- Investment options in an ORSO plan are still far more flexible than in an MPF scheme. Investments can range from accounts at Interactive Brokers or Saxo to harder assets like physical real estate.
- The employee may enjoy tax advantages in retirement if they leave funds in the plan and retire to a country that has a double-tax treaty with Hong Kong.
Costs to setting up and running an ORSO plan.
There are several trustees in Hong Kong than set up and administer ORSO plans, and the most competitively priced ones I’ve seen can set them up for less than HK$100,000, with ongoing fees starting at around HK$30,000 per year. Back of the envelope, I have found that this means ORSO plans start making sense, based on the tax savings alone, only for employers with an annual payroll of at least HK$10,000,000, of which they plan to contribute at least HK$1,500,000 to the plan.