Public Consultation on Labor Severance Funds

On May 9, 2025, through General Resolution 1066, the Argentine Securities Commission (CNV) submitted for public consultation a new regulatory chapter governing the operation of open-end mutual funds and financial trusts for labor severance, in line with Decree 847/2024.

This initiative aligns with Decree 847/2024, issued under Law 27742 of Foundations and Starting Points for the Freedom of Argentinians, which regulates the promotion of registered employment and labor modernization. The Decree calls for implementing a labor severance system as an alternative regime, agreed to with union agreements, to replace statutory severance and other related compensations under the Argentine Labor Law.

The Decree provides that the system may be structured through open-end mutual funds (FCI) and financial trusts (FF) for labor severance, allowing contributions at an individual, company, or industry level. These funds are to be non-attachable and solely allocated to benefits as agreed to in union agreements.

Key features of the proposed open-end mutual funds and financial trusts for labor severance include:

1.    Flexible contribution structure: units or trust securities may be established at the individual, company, or industry level. Parties may freely agree on the contribution percentage or fixed amount, as well as on payment frequency and other characteristics. Contributions can be allocated to company-level or sector-wide funds and may be made by employers, employees, or both, as determined in the corresponding union agreement.

2.    These instruments are protected from attachment by creditors of either party, regardless of the nature of the debt. Assets and income of the labor severance collective investment products must be exclusively used to fund agreed-upon benefits.

3.    Only employer and/or employee contributions are allowed. In the case of employer contributions, units or trust securities will be assigned under a suspensive condition in favor of the employee, company, or sector, as outlined on the applicable union agreement. The depositary company or financial trustee, as applicable, must keep subaccount records reflecting these assignments. Union agreements must also state that the signing parties cannot benefit from unclaimed funds and must define their allocation.

The Resolution explicitly appoints the CNV as the regulatory and supervisory authority for these instruments, ensuring proper investment policies and compliance with the regime. Therefore, the Decree promotes a special regulatory regime for labor severance collective investment products (PICs), within the CNV’s legal scope.

Labor Severance PICs must include the terms "Cese Laboral" (Labor Severance) in their names. Furthermore, they must specify—in the trust agreement or the funds regulation—a reliable notification mechanism through which the employer informs the financial trustee or the bodies of the FCI, as the case may be, that the cause for the payment of the amounts resulting from the severance system or the change of ownership of the quotas in favor of the employee has occurred.

The Resolution provides that open-end mutual funds for labor severance will not use the standard management regulations and must have a specific regulation tailored to this special regime. However, general rules regarding operations, asset valuation, and investment diversification will still apply. 

FCIs may not invest in instruments issued by their contributing employers nor concentrate more than 30% of their assets in a single industry. The depositary company must maintain detailed records of all units, including those conditionally assigned to employees. Once the units are transferred to the worker, they may dispose of them freely, though no further subscriptions will be allowed.

Meanwhile, financial trusts for labor severance will not be required to prepare CNV-approved prospectuses but must publish them on the Financial Information Highway (AIF). The incorporation of new settlors during the trust’s duration will be allowed if provided for in the agreement and in the case of companies that choose to implement the labor severance system.

Both FCIs and FFs must implement conservative and diversified investment policies, maintain regular information channels for workers, and ensure proper mechanisms for fund or trust liquidation and cancellation. Investment advisors or committees may participate, provided they have no ties to unions and that their fees are reasonable.