72886 Policy Note on SJSN PROGRAM AND POLICY IMPLICATIONS Issue 3, July 2012 Institutional Transformation of BPJS Ketenagakerjaan The Government of Indonesia (“government� or “GOI�) will Change in Legal and Governance Structure. The BPJS implement a new National Social Security System (Sistem Ketenagakerjaan will be a public legal entity, and no longer a Jaminan Sosial Nasional or SJSN) over the course of the persero, i.e. for-profit state-owned enterprise. It should operate next four years that will radically change the social protection on a not-for-profit basis and in the best interest of participants. paradigm. The legal bases for these changes are the SJSN This change will also require more transparent operations Law No. 40/2004 and Law No. 24/2011 on Social Security and more open public information. BPJS Ketenagakerjaan’s Administrative Bodies (referred as Badan Penyelenggara reporting line is also changed. It will now report to the President, Jaminan Sosial or BPJS law). instead of to the Ministry of State-Owned Enterprises (MSOE). The BPJS is required to provide semi-annual and annual reports The new social protection program will cover all Indonesians, to the President. To meet this new responsibility, BPJS will need including formal and informal sector workers, for five benefit to develop new reporting and disclosure mechanisms. programs and provide the same benefits for all. The BPJS Law mandates the establishment of BPJS Kesehatan and BPJS BPJS Ketenagakerjaan’s Board of Commissioners and Board Ketenagakerjaan, by transforming current administrators, PT of Directors will be appointed by the President and Parliament Askes and PT Jamsostek, from state owned enterprises to instead of by the MSOE. There is a different selection process non-profit public legal entities. Transformation of Jamsostek and criteria for the respective appointments. into BPJS Ketenagakerjaan must be completed by January 1, 2014 and its operation of the SJSN employment programs BPJS will be supervised internally by the Board of should begin by July 1, 2015. Commissioners and an internal audit department and will be supervised externally by the National Social Security Council SJSN Law (Dewan Jaminan Sosial Nasional, DJSN), the new Financial Services Authority (Otoritas Jasa Keuangan, OJK) and the State Financial Audit Board (Badan Pemeriksa Keuangan, BPJS Law BPK) instead of the Ministry of Manpower and Transmigration (MOMT). Different reporting formats may need to be developed to meet the needs of each supervisory body. Askes Jamsostek transformed into transformed into Item Jamsostek BPJS BPJS Ketenagakerjaan BPJS Kesehatan Ketenagakerjaan Legal status Persero Public Legal Entity Old-Age Work Death Health Pension Savings Accident Bene�ts Legal type For-profit Not-for-profit Reporting line MSOE President, with copy to DJSN Transforming PT Jamsostek into BPJS Ketenagakerjaan is a Boards appointment Boards appointed by Boards appointed major task. It is much more than just a change in name. Significant MSOE by President and changes in legal, governance, organizational structure, staffing Parliament and competencies, job descriptions, business processes and Supervisory bodies Technical supervision DJSN, OJK and BPK IT system will be needed for PT Jamsostek as it transforms from by MOMT a persero managing programs for a portion of the formal sector Enforcement MOMT BPJS to BPJS Ketenagakerjaan managing nationwide programs of contribution covering thousands of employers and millions of both formal compliance and informal sector workers. Contribution and Part of Jamsostek Held by separate This policy note will focus on the key issues that should be investment return assets and liabilities legal entity. Assets held by State considered in the institutional transformation of PT Jamsostek custodian bank into BPJS Ketenagakerjaan. BAPPENAS By law, BPJS Ketenagakerjaan, not MOMT, will have authority significant changes to current business processes, particularly for contribution collection enforcement, and it has been given for recordkeeping and accounting, managing investments the right to impose administrative sanctions in cases of non- (investment paradigm and policy), and paying benefits. compliance. BPJS Ketenagakerjaan should ensure appropriate capacity and IT systems are established to carry out this task. The SJSN work accident benefit also raises a number of issues Certain standard operating procedures and mechanisms for that will impact how BPJS Ketenagakerjaan administers the ensuring participants’ compliance are necessary, especially program. The government should take into account integration since the SJSN employment programs will also cover informal of universal health care with the health portion of the worker workers. accident program and how the worker accident program will be applied to informal sector workers. The assets of the BPJS will be legally kept separate from those of the Social Security Funds (SSF) that it administers. Change in Membership. Currently Jamsostek offers The assets in these SSF are managed by the BPJS but do not benefit programs to formal sector workers only while BPJS belong to the BPJS. SSF assets will be held at the State-owned Ketenagakerjaan will provide nationwide SJSN employment custody bank. The asset separation will keep the BPJS from programs. BPJS Ketenagakerjaan will cover the entire having direct control of the assets that belong to members, and Indonesian labor force, which consists of about 110 million allows the custodian bank to review the financial transactions workers, of whom 40 million are salaried and 70 million are non- requested by the BPJS to assure they comply with the salaried. Unlike Jamsostek, BPJS Ketenagakerjaan law. This will require a different business process will be responsible for enforcing participation than today and a different, transparent of workers from all segments of the labor system of checks and balances to New Functions market (including informal workers). ensure the monies are deposited in the • Contribution collection BPJS should also educate the public appropriate accounts and managed in enforcement about the rights and obligations of a way that ensures financial stability • Register non-salaried workers participants, the purpose and goals of the programs and protects the • Issue unique IDs of the programs, the procedures for interests of participants and the • Pension payments the SJSN employment programs State budget. • Reporting requirements and the operations of BPJS • Separate investment policies Ketenagakerjaan. Collaboration for each of the four SSF Change in Program Coverage. with relevant ministries and/or employment programs The nationwide SJSN employment • Manage four separate SSF organizations may also need to programs will differ in both design with separate legal entities be explored to ensure BPJS meets and coverage from the existing • Financing from fees charged its responsibility for ensuring total programs. The health program currently to SSF labor force participation in the SJSN managed by Jamsostek will be transferred employment programs. to BPJS Kesehatan by 1 January 2014 while other existing programs (old-age savings, worker Change in Organizational Functions. accident and death benefits), and a new defined benefit Implementing the nationwide SJSN employment pension program will be managed and administered by BPJS programs will introduce new functions for which Jamsostek Ketenagakerjaan. is not currently responsible but which will be critical to the success of BPJS Ketenagakerjaan as well as the entire SJSN The implementation of the new pension program will require employment programs. a new set of competencies -- both technical and operational -- since Jamsostek currently does not offer and manage any Unique individual identification numbers (ID) for all participants is defined benefit pension program. The BPJS will need to gather the key for properly administering the social security programs. and store data required to calculate benefits, receive and BPJS Ketenagakerjaan will need to work together with approve applications for benefits, calculate benefit entitlements BPJS Kesehatan and the Ministry of Home Affairs (MOHA) and pay monthly benefits to old-age pensioners, disability on an identification program. If the unique ID developed by pensioners and survivor beneficiaries. BPJS will also need MOHA is not ready in time for the start of the SJSN programs capacity to adjust benefits for annual indexing and to stop or is not sufficiently robust, BPJS will likely need to develop a benefit payments when recipients are no longer eligible. The separate unique ID number solely for the BPJS Kesehatan government will also need to decide whether informal sector and Ketenagakerjaan systems. workers will participate in the new pension program as the SJSN law seems to preclude them from participation. By law, BPJS has been assigned the responsibility for registering and collecting contributions from both salaried workers and The SJSN old-age savings program will eventually be their employers, non-salaried workers and the government. significantly larger than the existing Jaminan Hari Tua (JHT) BPJS will need to collect the right amount of money on time program that Jamsostek manages today. The administrative from millions of participants. While registration and contribution procedures may also be very different. This will likely require collection mechanisms for formal sector workers are already in 2 The World Bank place, there are no such mechanisms available for informal sector SSF should be managed so it will be able to fully cover and pay workers, whether paid or unpaid. The non-salaried, informal all future benefit payment obligations in both the short term and workforce consists of entrepreneurs, micro-enterprises, family the long term. To assure that assets are properly managed, businesses, and unpaid family workers. Much of this workforce the government should issue investment and risk management is in rural and remote locations and almost all are essentially regulations defining the financial framework and governance self-employed. There are also no procedures for contribution structure of the new system. payment enforcement. Therefore, it is imperative for BPJS Ketenagakerjaan to work with BPJS Kesehatan and the government to explore, develop and determine a strategy Different investment policies and strategies are for effectively and efficiently registering participants, appropriate for different funds, depending upon collecting contributions and enforcing payment from the the type and characteristics of each program and large and highly diverse group of informal sector workers. the demographics of plan members. To implement the best solution, BPJS will likely need to pilot test possible options for registering and collecting contributions from informal sector workers. BPJS operating income will come primarily from fees charged to each SSF to cover the costs of BPJS administrative services. The BPJS will have to maintain systems for verification and BPJS can charge fees as a percent of contributions and/or monitoring of benefits and will have to process and make as a percent of investment income to cover its administrative payments to individuals. Payment of monthly annuities to costs for each of the programs. This charging function will be old-age pensioners, disability pensioners and beneficiaries a novelty. Fund assets will be separated from BPJS assets and entitled to survivor benefits will be a critical function for each SSF will likely have a different fee structure that reflects the BPJS Ketenagakerjaan as Jamsostek may not have the nature of administrative expenses for that particular program. competencies required. Expense charges will have to be more transparent than in the past and procedures for assessment and payment of Reporting procedures for BPJS include semi-annual reports to fees from the SSFs to the BPJS will have to be established be submitted to the President and to DJSN as well as an annual to support the required level of transparency. report (whose executive summary must be widely published by BPJS). BPJS must also inform participants about their rights Recommendations and, at least once per year, account for the benefits they have earned in the pension and old-age savings programs. These Re-evaluation of BPJS Ketenagakerjaan will need to new reporting demands will require different procedures than the structure of have an appropriate organizational in the past. Adoption of international accounting standards by the organization structure and employees with 2014 will also require a different set of competencies among relevant education, experience and both BPJS employees and auditors responsible for auditing the competencies to be able to carry out the duties required financial statements of BPJS Ketenagakerjaan. to support the implementation and operation of the SJSN employment programs. Since the programs, coverage, legal and BPJS sta and auditors governance structure, and required functions have changed, All SJSN employment will have to be trained it will be necessary to re-evaluate the organizational programs will be to ensure structure of Jamsostek and its human capital to see to impacted by they understand what extent these meet the requirements for successful the requirement for how to comply BPJS Ketenagakerjaan operations and SJSN employment adoption of with International programs implementation. international Accounting Standards accounting standards (IAS) in order to It will be necessary to conduct job analysis and to develop by 2014. properly prepare nancial statement relevant job descriptions or terms of reference. In addition and perform audits. to the need for external recruitment, staff taken over from Jamsostek should be offered professional or technical training/ education programs to ensure that BPJS human capital will be Contributions from employers, workers and the government, able to cope with the tasks required to operate the nationwide and investment income on those contributions, will be placed SJSN employment programs. Jamsostek employees will in the appropriate Social Security Fund (SSF), one for each need to be quickly trained and new employees with needed program. Each fund will require different technical reserves competencies/expertise should be quickly hired so they can based on recognized standards of actuarial practice. Each fund properly perform their duties from day one. Some training will will require a different investment strategy and methods be general and for all employees, while some should be specific of actuarial reserving than for the current Jamsostek to the duties and responsibilities of each individual. Considering programs. Furthermore, the SSF assets can only be used the limited supply of workers with necessary expertise, it is to pay benefits to participants and to pay for administrative likely BPJS Ketenagakerjaan will need to hire many employees expenses; there can be no cross-subsidy between funds. Each with proper aptitude but lack of proper experience, and then Policy Note on SJSN | Issue 3 | July 2012 3 provide extensive training in social security programs, benefits • Development of the required roadmap for the establishment calculations, determination and payment of benefits, investment of BPJS Ketenagakerjaan and implementation of the four and asset management, recordkeeping and accounting. employment programs. Financial staff must also be trained to ensure they understand • Technical aspects of the transformation of PT Jamsostek International Accounting Standards (IAS) in order to prepare to BPJS Ketenagakerjaan in the areas of organizational and audit financial statements. structure and staffing, job analysis and job descriptions, human capital development and professional certification, It is crucial to first develop high level business processes and IT systems. Re-think business processes that affect members • Use of unique ID numbers for the SJSN system. business process and supporting IT and management of enterprise activities. • Development of contribution collection and enforcement system Business processes affecting members systems taking into account global experience with collection include registration, collections, from the informal sector. payments, reporting and funds management. Business • All aspects of implementation of the new defined benefit processes for managing enterprise activities of the organization pension program including design, cost, financial modeling, (BPJS Ketenagakerjaan) include operations, human resources development of a financing and investment strategy, and and relationships with other parties. The IT systems should be administrative functions. implemented early in the process to assure business processes • Administration and investment paradigms for the old age are automated from the start and don’t have to be changed and savings program. that people are not hired to manage the increased workload in the short term. It is best to rethink and revise all current business processes and IT systems at an early stage of the transformation, taking into account all the new functions and This Policy Note was produced as part of the World responsibilities of the organization, the expanded coverage and Bank inputs to the Government of Indonesia on the the new legal and governance structure. Moreover, compliance implementation of SJSN (Sistem Jaminan Sosial Nasional, National Social Security System). This note with new reporting and disclosure requirements will also require was prepared by the Poverty–Social Protection unit of modification of accounting, finance and actuarial systems. the World Bank Office Jakarta and written by Mitchell Systems for complaints handling will also be key. Wiener (Senior Social Protection Specialist, EASHS) and Iene Muliati (Consultant, Social Protection BPJS Ketenagakerjaan and BPJS Kesehatan should Specialist, EASHS). The authors would like to thank have one integrated and shared system for individual ID Erwin Ariadharma, Staffan Synnerstorm and Suresh numbers, for employer and worker registration, and for Gummalam (WB-Jakarta-based Public Sector contribution collection and enforcement. It wouldn’t make Management team) for comment and discussion. sense to have two different ID numbers, one for each system, The Funding for this note was made available by and to have two BPJS separately collecting contributions the Australian Agency for International Development from the same employers and workers. To meet this goal, (AusAID). there are several areas requiring very close attention including Significant input for this note was provided by development of linked business processes and IT systems partners from the Government of Indonesia, between BPJS Ketenagakerjaan and BPJS Kesehatan. In particularly Rahma Iryanti (Director for Manpower addition, since the programs are nationwide, IT systems should and Employment Opportunities Development) from be able to capture employment movement of its members. Badan Perencanaan dan Pembangunan Nasional Current administrative systems may not be able to provide this (Bappenas), the National Development Planning essential service. Agency. The findings, interpretations, and conclusions The implementation working groups Develop policy expressed herein do not necessarily reflect the views comprising officers from various concepts of the Board of Executive Directors of the World Bank ministry offices and government & conduct or the Governments they represent. technical reviews agencies, with technical assistances from development partners, should For any questions regarding this note, please contact of required work together to quickly analyze Mitchell Wiener (mwiener@worldbank.org) or Iene actions for the implementation needed changes, develop policy Muliati (imuliati@worldbank.org). concepts, conduct technical reviews and agree on required actions to meet the government’s THE WORLD BANK OFFICE JAKARTA technical and financial needs for the implementation of BPJS Indonesia Stock Exchange Building Tower II/12th Floor Ketenagakerjaan, taking into account relevant global, regional Jl. Jend. Sudirman Kav. 52-53 and local experience and expertise in all aspects of institutional Jakarta 12190, Indonesia transformation. To ensure the smooth and successful Tel: (6221) 5299-3000 transformation of Jamsostek to BPJS Ketenagakerjaan, the implementation working group should agree on and take Fax: (6221) 5299-3111 immediate actions on the following key implementation issues: 4 The World Bank