7B.8 The PRS Account Structure (Sub-Accounts A and B) and Vesting

The 70:30 Split

Every contribution to any fund in a PRS is divided into two sub-accounts:

Retirement age is 55, or another age the SC may specify.

Study guide examples

XY Bond Fund (NAV rises):

YZ Equity Fund (NAV falls):

Notes:

• Every new contribution, to any provider and any fund, is split 70:30.
• All withdrawals from sub-account B other than at retirement are pre-retirement withdrawals; the tax penalty is collected by the PRS Provider from the amount withdrawn (except for exempt purposes).

Accrued Benefits and Vesting

Accrued benefits are the amount of a member's beneficial interest in a PRS: the amounts in sub-accounts A and B.

Vested and conditionally vested units

Where contributions follow a vesting schedule, the provider issues vested and conditionally vested units. Both carry equivalent rights as fund members, but conditionally vested units cannot be transferred to another provider or withdrawn. Providers need maintain sub-accounts A and B only for vested units.

Vesting Schedules

Employers may attach a vesting schedule to their contributions to promote loyalty. It is optional and determines how much of the employer's contributions the employee is entitled to, based on length of service. The provider must ensure such benefits are not transferred or withdrawn until unconditionally vested.

Study guide example – graded vesting schedule:

An employee who leaves after three years keeps only 50% of the employer's contributions; the rest is forfeited. If the employer had contributed RM12,000 (now worth RM13,000), the employee keeps RM6,500 of it. The employee's own contributions are always theirs.

Common Exam Traps on Sub-Accounts and Vesting

• The split is 70:30 on every contribution, not on the account balance; fund performance can later change the ringgit values in each sub-account.
• Sub-account A is not untouchable: death, permanent departure, and permanent total disablement, serious disease or mental disability all allow withdrawal of A and B.
• A graded vesting schedule vests employer money in steps; the member's own contributions vest immediately.
• Conditionally vested units carry normal fund rights but cannot be withdrawn or transferred until they vest.

The PRS Provider's Duties on Vesting

The vesting schedule's terms must cover, at least:

1. the terms of the employer's contribution and of vesting units;
2. the rights attached to vested and conditionally vested units, including limits; and
3. whether conditionally vested units become unconditionally vested on events such as: cessation of employment; the employer being wound up or dissolved; appointment of a receiver and manager; the employer entering a compromise or scheme of arrangement with creditors; a merger or acquisition of the employer; termination of the vesting schedule; death of the employee; or other circumstances specified by the SC.

When notified of a relevant event, the provider must either:

• repurchase the conditionally vested units and pay the proceeds to the employer within 10 days; or
• vest the units in the member or the member's estate as soon as practicable.