On private pension funds

EFFFECTIVE as of 01.07.1998 Published: Vestnesis, 20.06.97; Nr. 150

Parliament of the Republic of Latvia
Law passed as of 05.06.1997



ON PRIVATE PENSION FUNDS


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Section I General conditions

Article 1. Definitions

Definitions for the purpose of this law are the following:

employer - a legal entity or physical person, the individuals enter into the employment or service relations;
individual affiliation contract - shall mean the contract, entered into between the physical person and the pension fund on affiliation of this individual to a definite pension plan;
collective contract of affiliation - shall mean the contract, entered into between the employer and the private pension fund, made on this employer's employees affiliation to a definite pension plan;
asset manager - the corporate company, performing the pension fund assets management;
custodian - the bank, realizing the custody of the pension fund facilities;
pension fund board -is a private pension fund management body, performing the management and bearing responsibility for the private pension fund operation in accordance with the provisions of the law, private pension fund Statutes and the licensed pension plans
pension plan committee - shall mean pension fund control institution, which is jointly established by the employer and the employees, affiliated to the pension plan to provide the execution of the control functions, prescribed by this law.
pension plan members - shall mean the individuals, contributing or on behalf of which the employer makes contributions to a private pension fund and which are entitled to additional pension benefit assets under a pension plan;
additional pension benefits assets - shall mean the money facilities, which within a definite period, pursuant to this law, are accumulated on behalf of the pension plan member;
retirement age - shall mean the age, when the pension plan member, under provisions of this law, is entitled to receive the additional pension benefits assets, accumulated with the pension fund.
related companies - two or several companies (corporate companies), in compliance with at least one of the related companies provisions, specified by the law "On corporate tax".


Article 2. The purpose of the law.

The law herewith sets forth the kinds of private pension funds, provide the basis for activities of such funds, conditions of membership with the pension plan, rights and duties of pension plan members, asset management, competence of custodians and state supervision of these activities.



Article 3. Notion of a private pension fund

(1) A private pension fund (hereinafter – pension fund) is a nonprofit finance and credit stock company, registered with the Enterprises Register of the Republic of Latvia, which in accordance with this law and pension plans, accumulates and invests voluntary money facilities contributions made by and on behalf of their members with a purpose to provide these members the old age additional pension assets.

(2) Pension fund is not a public stock company.

(3) Pension funds are not allowed to perform any other kind of entrepreneurial activity, except as prescribed by this law.

(4) The pension funds revenues surplus over expense shall not be withdrawn or paid in dividends to the shareholders and shall be fully remitted to the pension plans members individual accounts in compliance with the provisions of this law.



Article 4. Kinds of pension funds

(1) Pension funds may be open or closed.

(2) A closed pension fund may have one or several pension plans. The members of the closed pension plan may be only the persons, which at the moment of affiliation to the pension plan, are the employees of one or several founders (shareholders) of the pension fund.

(3) The pension fund is open, provided the founders (shareholders) are legal persons in compliance with Article 6, Part 2 of this law.

(4) The open pension fund may be with one or several pension plans. Any individual directly or with a mediation of the employer, entering into a contract, may be affiliated with the pension plan under provisions of this law.



Article 5. The name of a pension fund

The name of a pension fund shall include the words "pension fund" with a reference to the open or closed pension fund. Only the pension funds, established in accordance with the procedures provided by this law, shall be entitled to use these words in their name.



Section II. Creation of a pension fund

Article 6. Pension fund founders and shareholders

(1) The founders (shareholders) of the pension fund may be any physical and legal persons, in compliance with the criteria, set forth by the law "On stock companies".

(2) The founders (shareholders) of the open pension fund may be only:

1) a bank, permitted to the accept the deposits of individuals pursuant to the procedure, prescribed by the Bank of Latvia;

2) the life insurance company, registered in the Republic of Latvia;

(3) After creation of the pension fund the alienation of its shares is permitted only with a prior written consent of the Insurance Supervision Inspectorate.

(4) In the event that subsequent to the registration of the open pension fund and commencement of its operation – revoked are the rights to accept the deposits of individuals for the banks, which are the shareholders of the fund; or the rights to perform such kind of insurance activity are cancelled to its shareholders – life insurance companies, their shares shall be alienated under the procedure, stipulated by the law "On stock companies" on the closed emission shares transfer within the ownership of the other person. If none of the open private fund shareholders shall comply with the requirements, stipulated by part (2) of this Article, then Insurance Supervision Inspectorate shall suspend the licence for operation of this open pension fund and shall determine the term, in which the shareholders shall alienate their shares to such legal persons, which are in compliance with the criteria, established by part (2) of this Article for the shareholders of the open pension funds or the pension fund shall perform the reorganization, being changed to a closed pension fund or shall join the other open pension fund, or shall stipulate other activities to be performed in order to continue the operation of this pension fund.

[ < * > - with the amendments, made by the law as of 27.08.98, effective as of 25.09.98 ]



Article 7. Statutes of the pension fund

(1) The founders of a pension fund elaborate and approve (accept) the Statutes of the fund, which in addition to the data, prescribed by the law "On stock companies" and "On non-profit organization", shall contain also the following:

1) a kind of a pension fund;

2) a general procedure of affiliation to a pension plan or withdrawal;

3) the procedure on organization and operation of the pension plan committees;

4) general accounting procedure of the pension plan members individual accounts;

5) the procedure on the pension fund expenses coverage and proceeds utilization;

6) other regulations, required for the pension fund operation.

(2) If any changes originate in the data, included in the Statutes, the amendments shall be respectively made and subsequent to coordination with the Insurance Supervision Inspectorate shall be registered with the Enterprises Register of the Republic of Latvia. The amendments are effective as of the moment of their registration with the Enterprises Register of the Republic of Latvia with a prior coordination with the Insurance Supervision Inspectorate. Any changes with the composition of the pension fund board, if such is organized, and the members and candidates to the Board, executive directors, other persons with signature rights, sworn auditors and audit commissions, if such are created, are effective with a prior coordination with the Insurance Supervision Inspectorate.

(3) Any amendments to the Statutes shall not with a backdate decrease the situation of the pension plan members or the third persons and shall not limit the rights, actually obtained to the moment, when the respective amendments to the Statutes are passed.

[ < * > - with the amendments, made by the law as of 27.08.98, effective as of 25.09.98 ]



Article 8. Registration and licensing of the pension fund

(1) The pension fund shall be registered in compliance with the provisions of the laws "On Stock Companies" and "Nonprofit Organization", as well as in compliance with the procedure, established by this law

(2) A special permit (license), issued by the Insurance Supervision Inspectorate, is required to perform the activities of the pension fund. The pension fund is entitled to commence its operation only subsequent to the receipt of such a permit (license) with the Insurance Supervision Inspectorate and its submitting to the Enterprises Register of the Republic of Latvia. A special permit (license) to perform the pension fund operation is issued in accordance with this law and Cabinet of Ministers Regulations.

(3) The application for the receipt of a special permit (license) shall be filed to the Inspectorate not later than 60 days as of the day of registration of the pension fund with the Enterprises Register of the Republic of Latvia. In order to receive a special permit (license) the pension fund shall carry out and comply with the following requirements:

the pension fund shall be created and registered under the provisions of this law and the laws "On stock companies" and "On non-profit organization";
the shareholders of the pension fund shall not possess of the social tax and corporate tax arrears;
the pension plan(s) shall be elaborated and filed to the Insurance Supervision Inspectorate for licensing;
under the provisions of this law the agreements shall be made with the asset manager and a custodian on the pension fund assets management and custody;
the pension fund staff shall comply with the provisions of the second and the third part of Article 14 of this law;


(4) The Insurance Supervision Inspectorate shall consider the application of the pension fund on issuance of a special permit (license) and pass a resolution not later than 90 days as of the day of filing of the application and the required documents;

(5) The Insurance Supervision Inspectorate may refuse to issue to the pension fund a special permit (license), however, if such is already issued – shall suspend its effectiveness if the pension fund shall not comply with this law and provisions, set forth by the Insurance Supervision Inspectorate on the pension fund operation. Whereas effectiveness of the special permit (license) is suspended, the Insurance Supervision Inspectorate tasks the pension fund to eliminate violations within its stipulated term.

(6) If the provisions, stipulated by the second part of Article 7 and Article 23 of this law are not followed, then the Insurance Supervision Inspectorate shall produce a warning notice to the pension fund management institution. If subsequent to such a warning notice, the indicated violations are not eliminated, or if the pension fund regularly breaches the rules on its operation, then the Insurance Supervision Inspectorate is entitled to impose a penalty to the pension fund in the amount up to two hundred minimum wages or to annul a special permit (license). The collected penalty amounts are transferred to the state budget.

[ < * > - with the amendments, made by the law as of 27.08.98, effective as of 25.09.98 ]



Section III

A status of a pension plan and affiliation to it

Article 9. Pension plan

(1) A pension plan is a body of systematized rules for the pension benefits accumulation with the pension fund, their investment and benefits payments. The pension plan shall be elaborated by a respective pension fund, however, licensed by the Insurance Supervision Inspectorate. The licensing procedure on the pension plans application is established by the Insurance Supervision Inspectorate. Once the license is received from the Insurance Supervision Inspectorate, any changes to the respective pension plan shall only be made with the Insurance Supervision Inspectorate’s written approval.

(2) Any contributions, accumulation, investment with the pension fund or payment in order to provide the pension benefits, as well as any manner of public advertising of the pension fund operation and its provided services shall be performed only pursuant to the pension plan(s), licensed by the Insurance Supervision Inspectorate.

(3) A pension plan shall indicate:

a kind of a pension fund, its name and a legal address;
a name of a pension plan;
institutions and officials, responsible for the pension plan management and its execution, the scope of their competence and responsibilities;
criteria and requirements on the pension plan members affiliation and withdrawal;
the contributions procedure and consequences in the event of its violation;
calculation and accounting rules on the individual accounts of the pension plan members, the made contributions and the accumulated additional pension assets;
rules on the retirement age;
the procedure on additional pension benefits payment to pension plan members, reaching the retirement age;
other cases and the procedure of additional pension benefit assets payment;
the investment rules to which the pension plan shall adhere;
proceeds distribution procedure;
the order on the pension fund expenses coverage and notification of the pension plans members on these costs of the pension fund;
other information, required for the pension plan.
(4) The social tax administration in case of arrears of this tax may require the employer to terminate his contributions to the introduced pension plan until the arrears are covered, simultaneously notifying on it the Insurance Supervision Inspectorate and the pension plan committee.

[ < * > - with the amendments, made by the law as of 27.08.98, effective as of 25.09.98 ]



Article 10. Affiliation to a pension plan

(1) The pension plan member may accumulate the additional pension capital only affiliated to a definite pension plan.

(2) The pension plan members may participate with the pension plans directly or with the mediation of their employers.

(3) The pension plan members directly participate in a pension plan entering into individual affiliation contracts with the open pension fund. The form and regulations of such individual affiliation contracts shall be approved by the Insurance Supervision Inspectorate. The individual affiliation contracts must be registered. The board of the open pension fund is responsible for registration and accounting of these contracts. The individual affiliation contracts are valid only with a number of registration. The procedure of such registration is prescribed by the pension plan.

(4) The pension plan members may participate in the pension plan with a mediation of their employer, provided the employer entered into a collective contract of affiliation with the open or closed pension fund, and if the respective employer is also one of the same closed pension fund founders (shareholders). Legal relations between the employer and the employees, originated as a result of introducing of the pension plan and the employees affiliation are regulated by the employment contract or the collective employment contract.

[ < * > - with the amendments, made by the law as of 27.08.98, effective as of 25.09.98 ]



Article 11. Mandatory provisions of the pension plan and affiliation contract

(1) All pension plans, as well as collective and individual affiliation contracts shall contain provisions, specified by this law. The collective or individual affiliation contracts, decreasing the situation of the pension plan members, compared to provisions of this law, are not valid.

(2) If an employer sets up his/her/its employees' pension plan, all employees of the respective employer shall have the right to participate in compliance with the profession, a service period, a position, as well as other objective criteria, provided by the pension plan.

(3) Affiliation of members with the same objective criteria, specified by part (2) of this Article, shall be treated equally. Any discrimination due to origin, property status, race and nationality, gender, religious belief must not be permitted.

(4) When the member reaches the retirement age, the additional pension benefits assets, accumulated with the pension fund, at the option of the individual, shall be treated in one of the following manners:

the accumulated additional pension capital is transferred to the State Social Insurance Fund, where it is remitted to the individual account of the socially insured person and combined with the pension capital (pursuant to the law "On State Pensions"), when the pension benefit amount is calculated subject to the law "On State Pensions"
the insurance policy with the life insurance company is purchased by the accumulated additional pension assets;
all the accumulated additional pension assets are paid to the individual in money facilities.
(5) The retirement age, specified by the pension plan, shall not be less than 55 years, except special pension plans for specific professions in accordance with the list, approved by the Cabinet of Ministers.

(6) Remittance or payment of the accumulated additional pension assets prior to the retirement age may be allowed:

if the respective pension plan member is qualified as the I group disabled for the lifetime period;
in case the employer, which performed contributions on behalf of a pension plan members, is declared bankrupt and liquidation procedure is commenced;
(7) In the event of demise of the pension plan member prior to the retirement age prescribed by the pension plan, the rights to the additional pension benefits assets, accrued to the day of demise, shall possess the member's heirs in the order, stipulated by the Civil Code. According to the option of the heirs, the inherited additional pension capital may be remitted to another pension plan or the pension fund, or received in money facilities.

(8) A member of a pension plan in accordance with the provisions of this law is entitled to terminate membership with one pension plan and to transfer the pension capital to another plan.



Article 12. Guarantees to pension plan members

(1) The member of the pension plan, without any additional conditions shall have the rights for a total amount of the additional pension capital, accrued in his/her individual account.

(2) Once contributed to the pension fund by the member of the pension plan or by the employer to his introduced pension plan on behalf of the pension plan member, the money facilities shall be immediately remitted to the member’s individual account.

(3) Under no circumstances such additional pension capital, accumulated with the individual account, shall become the property of the asset manager, the custodian or the employer.



Article 13. Termination of affiliation

(1) In the event that an employer chooses to terminate the collective contract of affiliation, then in order to transfer employees' pension assets to another pension fund, the employer must provide the pension fund board and the Insurance Supervision Inspectorate a respective request at least six months in advance.

(2) In the event that the pension plan member is willing to terminate the affiliation to the pension plan, then in order to transfer additional pension capital to another pension fund or the pension plan, a respective written request shall be filed to the pension fund board (or the respective pension plan committee, if the member participates with the pension plan on the grounds of the collective affiliation contract) at least one calendar month in advance.

(3) In all cases, when the request on the transfer of the accumulated assets is filed by the employer, contributing to the pension fund on behalf of his employees, such transfer shall only be made with the approval of the Insurance Supervision Inspectorate.

[ < * > - with the amendments, made by the law as of 27.08.98, effective as of 25.09.98 ]



Article 14. Pension fund management

(1) The management of the pension fund, organization of management institutions and their activity is regulated by the law "On Stock Companies", except the third part of Article 48 on constitution of the company council/directors board which is not mandatory for the closed pension funds.

(2) Officials of the pension fund, auditors and members of the audit commission shall not be physical persons, which at the moment of undertaking of these responsibilities possess of a criminal charge or are convicted for an intentional crime.

(3) Officials of the pension fund, auditors and members of the audit commission may be the persons, which are:

sufficiently competent on finance management issues;
with adequate education and professional experience;
with an immaculate entrepreneurship reputation; and provided
their rights to perform the entrepreneurial activity are not revoked.


Section V Pension plan committees and their activities

Article 15. Pension plan committee

(1) If an employer created for his employees a pension plan, entering into a collective affiliation contract with the open or closed pension fund, then the employer and the employees, participating in the pension plan, shall jointly constitute the pension plan committee.

(2) The pension plan committee is the pension fund control institution, performing control over the management of the respective pension plan and its execution in compliance with the provisions of the collective affiliation contract.

(3) Each pension plan committee performs the control over the execution of the pension plan, arranged by the employer, within the scope of one collective affiliation contract and thereby a number of committees shall be equal to a number of collective affiliation contracts with the respective fund.



Article 16. Creation and composition of the pension plan committee

(1) The pension plan committee is jointly constituted by the employer and the employees, affiliated to a pension plan on the grounds of the collective contract of affiliation.

(2) The pension plan committee shall be fully constituted not later than three days prior to the first contribution payable by the employer on behalf of its employees - the respective pension plan members, pursuant to the provisions of the collective contract of affiliation.

(3) The pension plan committee consists of an equal number of the employer's administration and employees' nominated representatives. It is comprised of at least two members.

(4) The resolution of the meeting of employees, participating in the pension plan, on election of their representatives in the pension plan committee, is binding to the employer and the pension fund.

(5) The employer shall either determine its representatives or may also itself be the representative.

(6) The term of office for the pension plan committee is two years. After expiration of this term the pension plan committee members may be repeatedly elected, however, not more than two succeeding periods. In case a pension plan committee member - the employees' representative terminates employment with the contributing employer, his/her membership with the pension plan committee shall expire. If there is no elected substitute member, then within a period of one month a new pension plan committee member shall be elected, completing the predecessor's term of office.



Article 17. Employees' meeting, convening conditions and agenda

(1) The employer convenes the meeting of employees - current and provisional pension plan members.

(2) The employees' meeting:

elects its representatives to the pension plan committee;
considers the pension plan to be introduced.
(3) Voting in the election of representatives, in accordance with the resolution of the meeting may be open or secret. Only the employees, which agreed to participate with the respective pension plan, are eligible to vote. Resolutions are taken by simple majority vote. If at the representatives' elections more candidates receive votes than the number of seats to be filled, those with the most votes are elected. An elected person has the right to refuse the election and in such a case new elections shall be held.

(4) A different elections procedure may be provided by the joint employment contract.





Article 18. Activities of the pension plan committee

(1) The pension plan committee meets as frequently as required however at least once a year.

(2) The annual meeting shall be held not later than four weeks after the recurrent pension fund shareholders general meeting on the previous year performance.

(3) The pension plan committee meetings are convened according to the initiative of the Chairman or if majority of the committee members request such a meeting, providing a notice at least 10 days in advance. Such a period of notice can be omitted if all committee members agree.

(4) The pension plan committee is eligible to take decisions provided more than a half of its members are present.

(5) The committee takes resolutions by a simple majority of votes. In case of parity of votes, the resolution is not passed.

(6) The Chairman runs the committee meetings, however in his/her absence, according to the pension plan committee resolution, another committee member is designated.

(7) Minutes of all pension plan committee meetings must be kept and PUBLISHED to the pension fund board and the respective employer.

(8) The pension plan committee elects the Chairman among themselves, and if required - also other officials with signature rights.

(9) The Chairman and any other pension plan committee official may be both the employer's and the employees' representative.

(10) Composition of the pension plan committee, persons with the signature rights, as well as any further changes thereof shall be notified to the pension fund board and the Insurance Supervision Inspectorate.

(11) The pension plan committee shall inform the pension fund board of any employer's and employees' contributions outstanding, if the term of such contributions is overdue for more than 10 days.

[ < * > - with the amendments, made by the law as of 27.08.98, effective as of 25.09.98 ]



Article 19. Competence of the pension plan committee

(1) The pension plan committee performs the following functions:

the notification to the pension fund board on the information (withdrawals, name changes etc.), required for realization of the pension plan;
control over the timely and correct payment of the employees' and employers' contributions pursuant to the provisions of the collective affiliation contract, and their immediate remittance to the pension fund;
preparation of proposals to the pension fund board and the employer on amendments to the pension plan rules;
the timely, adequate and full information to the pension plan members and employer on the annual reports of the pension fund and auditors reports, placed investments and their gains, administrative costs, as well as other expenses, originated to the pension plan and the pension fund;
a regular preparation of information and notification of the pension plan members on the realization of the pension plan;
filing of proposals on due actions to prevent potential investment losses.
(2) The pension plan committee within the scope of its competence is entitled to require and to receive from the employer and the pension fund board the documents on the execution of the respective pension plan and the collective contract of affiliation.

(3) The pension plan committee is entitled to notify the Insurance Supervision Inspectorate on violations, established by the committee within the scope of its competence. The Insurance Supervision Inspectorate shall consider such an application not later than within a period of 10 days, notifying on inspection results the pension plan committee and the pension fund board.

[ < * > - with the amendments, made by the law as of 27.08.98, effective as of 25.09.98 ]



Section VI Management and custody of the pension fund assets

Article 20. Pension fund assets manager

(1) Management of the pension capital money facilities and other assets, accumulated with the pension fund, including new investments and their gains, must be performed only by the corporate company - the bank with a license of the Bank of Latvia and the Securities Market Commission license for brokerage activities in the securities market, and with the Bank of Latvia permit to accept the deposits of individuals, as well as by life insurance or brokers, or investments company, licensed by the Securities Market Commission, to perform brokerage activities in the securities market. Each pension fund may choose the pension fund asset manager at its own discretion under provisions of this law.

(2) The provisions on money facilities and other assets management are set forth by the contract, made between the pension fund board and the asset manager. The resolution on entering into a contract is passed by the pension fund board. The contract and any subsequent amendments to it shall be registered under procedure, prescribed by the Insurance Supervision Inspectorate.

(3) The pension fund asset manager ensures the investments policy realization, confirmed by the pension plan and its compliance with the regulations on the investments portfolio of the pension fund, performs settlements with the money facilities, contributed to the fund, receives and transfers securities and performs other transactions with the assets of the fund pursuant to the provisions of the law and the pension plans, licensed by the Insurance Supervision Inspectorate.

(4) In the event that the pension fund is closed, the asset manager and the founder (the shareholder) of the pension fund may not be related companies (corporate companies).

(5) The asset manager under procedure, prescribed by the Inspectorate and coordinated with the Bank of Latvia, shall deposit a security money amount, which shall not be less than LVL 50 000 (fifty thousand) and pursuant to the Court resolution shall be utilized to reimburse the losses to the pension fund and the members of the pension plans, provided these losses originated due to fraud, theft or negligence of the asset manager or its officers.

(6) At all times, in the order prescribed by the Inspectorate, the asset manager must hold the assets of its own, not belonging to the pension fund and equivalent to at least one per cent of the aggregate value of all pension funds assets under its management. The asset manager shall hold the assets, which exceed the amount indicated in Part (5) of this Article, in Government securities, quoted in official lists of stock exchanges, registered in Latvia, that serve as an additional security against potential losses, provided such losses originated due to fraud, theft or negligence of the asset manager or its employees.

(7) The asset manager is liable that the transactions with the additional pension assets, accumulated with the pension fund, are in compliance with the provisions of the law and the rules of the pension plan, licensed by the Inspectorate.

[ < * > - with the amendments, made by the law as of 27.08.98, effective as of 25.09.98 ]



Article 21. Custodian of the pension fund assets

(1) In accordance with the provisions of the contract, made with the pension fund board, the custodian shall receive the contributions to the pension fund accounts, shall receive and hold securities and certificates on deposits, as well as other originals of documents on money facilities and other property, that constitute the assets of the pension accumulations, payment documents on crediting or debiting money to the bank accounts, established for holding of the pension capital money facilities and execute orders related to transfers of the assets and securities of the pension fund.

(2) The custody of the pension fund assets may be performed only by the banks – credit-institutions, regulated by the law "On credit-institutions" and with the Bank of Latvia permit to accept the deposits of individuals.

(3) The pension fund board shall pass a resolution on entering into a contract with a custodian of the pension fund on safe holding of money facilities, securities and other property of the pension fund. The contract and any subsequent amendments to it shall be registered under the procedure, prescribed by the Insurance Supervision Inspectorate.

(4) The custodian and the founder (shareholder) of the closed pension fund shall not be related companies (corporate companies).

(5) The custodian shall conduct the money facilities settlement, receive and transfer securities with respect to transactions performed by the asset manager.

(6) The custodian must follow if the asset manager remains in compliance with the provisions of this law and other normative acts with respect to the investment portfolio of the pension fund and the pension plan, licensed by the Inspectorate, as well as its investment rules.

[ < * > - with the amendments, made by the law as of 27.08.98, effective as of 25.09.98 ]



Article 22. Individual accounts

(1) The pension fund board shall provide the calculation and accounting of the accumulated additional pension calculation, attributable to each pension plan member, irrespectively whether this member holds a collective or an individual affiliation contract with the pension plan. Such calculation and accounting rules shall be prescribed by each specific pension plan.

(2) The individual accounts must record the receipt of all contributions to the pension fund, made by or on behalf of the respective individual, as well as provide the record of all investment gains, calculated for the pension plan members from the total investment gains of the pension fund in accordance with the pension plan.

(3) In the event that the pension plan member terminates his/her affiliation to the pension plan, his vested amount as of the withdrawal day, is calculated in compliance with the pension plan rules, considering the distributed and undistributed pension fund revenues surplus amount over the expense, and is fully remitted to the person's individual account.

(4) The pension fund auditor shall make the conclusion in the annual report if the records on individual accounts remain in compliance with the provisions of this law and other norms, pension fund Statutes, pension plans and affiliation contracts.

(5) The general procedure on the accumulated additional pension calculation is established by the Cabinet of Ministers.



Article 23. The pension capital investment rules

(1) Pension capital assets shall be invested in compliance with the rules of the pension plans with the purpose of retaining and increasing the assets for the benefit of the members of the pension plans.

(2) The following mandatory provisions shall apply to the investments of pension plans:

investments in securities of one issuer may not exceed 10 % of the total assets value of the pension fund and 25 % of total assets of the issuer of such securities, except Government or municipalities securities, investments in which are not restricted. The investments are allowed only in the securities issued for and currently existing in public circulation, and quoted with the official lists of the stock exchanges, registered in Latvia;
investments in a single parcel of real estate shall not exceed 15 % of the pension fund assets value and the total of all investments, made by a pension fund in a real estate shall not exceed 25 % of the aggregate value of the pension fund assets;
investments overseas (securities, real estate etc.) shall not exceed 15 % of the total value of the pension fund assets;
pension fund assets may not be granted in advances (loans);
pension fund assets may not be invested in the corporate company, which is the founder (member), the assets manager, a custodian of the same pension fund or a related corporate company, except investment in the mentioned corporate company’s securities, quoted with the official lists of the stock exchanges, registered in Latvia.
(3) The Insurance Supervision Inspectorate may prescribe other restrictions on investments of the pension plans.

(4) The pension fund board shall prepare a written information on the short-term and long-term investments policy of the pension plans, which shall be freely available for the shareholders of the pension funds and the pension plans members, as well as filed with the Inspectorate.

[ < * > - with the amendments, made by the law as of 27.08.98, effective as of 25.09.98 ]



Article 24. Reporting to members of pension plans

(1) The pension fund board must, at least once per annum, inform in writing each individual pension plan member on the status of his/her individual account.

(2) This statement shall show the total of the accrued money facilities, the contributions paid by the employer and the employee in the reporting period, revenues and expense of the pension fund, as well as distributed and undistributed income surplus amount of the pension fund over the expense.

(3) The pension fund board shall notify the members of the pension plans also on any changes in the appointment of the auditor, the asset manager or the custodian, as well as shall provide any other essential information with respect to the pension fund performance since submission of the previous report.





Section VII Other conditions

Article 25. Accountancy, records and control over the pension funds operation

(1) Pension funds shall perform accountancy and records in accordance with the provisions of the law, instructions of the Ministry of Finance and Insurance Supervision Inspectorate within the scope of their competence.

(2) The form of the annual report is stipulated by the Cabinet of Ministers. The annual report shall be examined by the sworn auditor and filed to the Insurance Supervision Inspectorate and the State Revenues Service 10 days prior to its approval by the pension fund shareholders general meeting, however not later than four months after the end of the reporting year. The annual report is audited by the sworn auditor or any other person with the rights to perform such an activity granted by the Insurance Supervision Inspectorate

(3) The pension fund shall inform in writing the Insurance Supervision Inspectorate on the candidature of the sworn auditor or other person, performing the annual report auditing.

(4) The sworn auditor or other person, auditing the annual report, shall notify in writing the pension fund on the auditing results. The conclusion is prepared in compliance with the law "On sworn auditors" and its copy furnished to the State Insurance Inspectorate.

(5) The Insurance Supervision Inspectorate requires from the pension fund monthly and quarterly reports on its financial operation and determines their form, contents and deadlines for filing.

(6) The Insurance Supervision Inspectorate shall perform a complete auditing of the pension fund not less than once in three years. The Insurance Supervision Inspectorate is entitled to authorize the sworn auditor or other person to carry out these tasks.

(7) On regular violations of accounting rules the State Insurance Inspectorate Inspectorate is entitled to suspend or annul the licence of the pension fund.

[ < * > - with the amendments, made by the law as of 27.08.98, effective as of 25.09.98 ]



Article 26. Insolvency or bankruptcy of the asset manager, the custodian or the employer

(1) In the event that the asset manager or the custodian of the pension fund is declared insolvent and bankruptcy proceedings are initiated, or its respective licence is withdrawn, then with a resolution of the pension fund board a new asset manager and the custodian shall be appointed, and the assets of the fund shall be transferred to the new manager or the custodian.

(2) If the contributing employer is declared insolvent and bankruptcy proceedings are initiated, then the employees' pension plan and the underlying collective contract of affiliation shall be terminated, unless a new employer replaces the former with all its rights and commitments. The participants of the pension plan may continue this plan with a new employer.

(3) If the contributing employer is declared insolvent and bankruptcy proceedings are initiated, then the participant may terminate the membership under the pension plan and request the transfer of his/her accrued assets to another pension plan, or require the payment of the accrued additional pension assets in money facilities. In such a case, the value of the transferable or payable capital shall be calculated pursuant to the provisions of the third part, Article 22 of this law.



Article 27. Reorganization or liquidation of the pension fund

(1) The reorganization or liquidation of the pension fund shall be performed under the provisions, prescribed by the law "On stock companies", "On non-profit organization" and this law.

(2) The shareholders general meeting is not allowed to pass a resolution on completion of the pension fund liquidation until a full settlement of liabilities to the members of the pension plans.

(3) The resolution on commencement of reorganization or liquidation of the pension fund and appointment of liquidators may not be registered with the Enterprises Register of the Republic of Latvia without a respective permit, issued by the State Insurance Inspectorate, stipulating whether the pension fund may be reorganized or liquidated.

(4) In the event of liquidation of the pension fund, the members of the pension plans are entitled for all the additional pension assets, accrued with their individual accounts.

(5) Pension capital, accumulated with the pension fund to be liquidated, shall be transferred to another pension fund pursuant to the instructions of the Insurance Supervision Inspectorate.

[ < * > - with the amendments, made by the law as of 27.08.98, effective as of 25.09.98 ]



Article 28. State Supervision of the pension funds operation

(1) The State Supervision over the pension funds is carried out by the Insurance Supervision Inspectorate, which is an independent public administration institution, its operation is monitored by the Ministry of Finance and in accordance with the law "On insurance companies and their supervision", this law and the Regulations approved by the Cabinet of Ministers.

(2) The Insurance Supervision Inspectorate shall provide a professional approach and stability in the operation of the pension funds, as well as protection of legal interests and rights of the pension plans members.

(3) For financing of the Insurance Supervision Inspectorate the pension fund shall make the deductions from the contributions, made by the members of the pension plans or on their behalf, to the licensed pension plans of the pension fund in the amount and under the procedure determined by the Cabinet of Ministers. These deductions are recorded as the pension fund expenditures.

(4) The Insurance Supervision Inspectorate is entitled to perform examination of the pension fund by topics and to request the information and documents on its operation. The obligation of the pension fund is to provide to the Insurance Supervision Inspectorate all the requested information and to produce all the documents, and the pension fund is not entitled to decline such a request under the pretext of commercial confidentiality.

(5) The Insurance Supervision Inspectorate, on the grounds of the filed reports and the made examinations and audits, makes the assessment of the pension fund finance stability and, if required, shall give the instructions on improvement of the situation. The pension fund shall carry out these instructions in accordance with the fixed deadline.

(6) Insurance Supervision Inspectorate is entitled to issue to the pension funds binding orders and instructions following its responsibilities under this law, other normative acts or Cabinet of Ministers Regulations. The orders and resolutions, binding to the pension funds, are published in the newspaper " Latvijas Vestnesis."

(7) The representative of the Insurance Supervision Inspectorate is entitled to examine the pension fund operation and documents in its head office and branches and to participate, without the voting rights, in the meetings of it management bodies.

(8)The Insurance Supervision Inspectorate is entitled to propose to convene the pension fund board and council meeting, or shareholders general meeting and to determine the issues for consideration.

(9) The decision of the Insurance Supervision Inspectorate on refusal to issue the license, its suspension and annulment may be appealed to the court within a period of one month as of the day such a resolution is passed.

[ < * > - the wording of the law as of 27 August 1998, , made under Cabinet of Ministers Regulations # 493 as of 29.12.98, effective as of 06.01.99 ]



Article 29. Taxes policy on pension funds

(1) The Government sets forth for the pension funds, their operation, as well as investments gains and contributions the specific tax payment procedure and relieves on personal income tax and corporate tax.

(2) Taxes relieves and a specific payment procedure shall be referred solely to those licensed pension funds with the licensed pension plans in compliance with the provisions of this law and to those pension plan members, participating with the licensed pension plans.



Transition Regulations

(1) Up to July 1, 1998 the pension fund assets management may be performed only by:

the banks with the license, issued by the Bank of Latvia and the licence of the Securities Market Commission for brokerage activities in the securities market and with the permit of the Bank of Latvia to accept the deposits of individuals;
life insurance stock companies, licensed by the State Insurance Supervision Inspectorate to perform life insurance operations.
(2) The investment companies may perform the asset management of the pension fund only subsequent to the passage and effectiveness of the law "On investment companies".

The law is effective simultaneously with the law " On investment companies".

[ < * > - the wording of the law as of 11 December 1997, effective as of 02.01.98]



The law is passed by the Parliament as of 5 June 1997

Parliament Chairman
On behalf of the State President A. Cepanis



Riga, 20 June 1997