Legal Eye: ZUS in the hot seat

Moreover, the scope of ZUS's mandate is also under review, which could result in the reapportionment of responsibilities among different branches of government.

Organizational structure

ZUS is a government agency falling under the general supervision of the Ministry of Labor. I use the term "general" because many of the functions performed by ZUS are in fact interwoven with the functions of other government Ministries, including the Health and State Treasury Ministries. At present the Prime Minister is empowered to appoint and dismiss the president of ZUS upon recommendation of the Labor Minister. The Prime Minister is similarly empowered to appoint the supervisory board.

Mandate and budget

ZUS oversees several social programs, including but not limited to administration of the national pension system, long-term disability benefits, employee-related benefits, in addition to the collection and dissemination of funds to the National Health Fund, Labor Fund and Open Pension Funds. In 2005 total expenditures of ZUS amounted to zł.111 billion, of which zł.99 billion was paid out in pension benefits to more than 7.2 million individuals. During the same period, the number of employees paying in to the program amounted to just over 13 million. The average monthly retirement benefit in 2005 amounted to zł.1,256, with the minimum being set at zł.597. Other program costs include the payment of zł.3.8 billion in sickness allowances and zł.1 billion in maternity leave. Additionally, in 2005 ZUS collected and transferred more than zł.31 billion to the National Health Fund and zł.12.6 billion to Open Pension Funds.

Employee Costs

Approximately 70 percent of the budget for ZUS is collected in the form of payroll taxes. The balance is contributed by the government and other sources. Both employees and employers are expected to contribute. The total tax payable to ZUS amounts to over 47 percent of an employee's gross income, with the employer and employee generally sharing this burden in equal parts. This tax is in addition to the payment of personal income tax. However, an employee may deduct part of his or her ZUS payment from any personal income tax. By far the largest share of this tax is attributable to funding the pension system, which accounts for more than 70 percent of the tax. The balance is apportioned to the National Health Fund, Labor Fund and occupational insurance.

Open Pension Funds

In addition to the current debate regarding transfer of control over ZUS to the Prime Minister, a movement is gaining steam to transfer control of capital already in the hands of Open Pension Funds to ZUS. At the moment ZUS only collects and transfers contributions on behalf of 12 million employees, and distributes them among a total of 15 private Open Pension Funds, which administer the second "pillar" of Poland's three-part national retirement system, of which the first is administered directly by ZUS and the second and third are administered by private institutions. Payments into the first and second pillars are mandatory, while payments to the thrid are voluntary. In 2003 the State Treasury took over responsibility for funding the shortfall due the Open Pension Funds from ZUS, but ZUS retained administrative control over future payments to the Open Pension Funds.

Paul Fogo is a senior attorney with Miller, Canfield, W. Babicki & Partners. fogo@pl.millercanfield.com