Argentina implements Labor Assistance Fund for severance payments

Argentina is advancing the implementation of the Labor Assistance Fund (FAL), a mandatory mechanism designed to finance severance payments. Under this new labor reform, employers will make monthly contributions based on their total payroll. Large companies are required to contribute 1%, while Small and Medium-sized Enterprises (PyMEs) must contribute 2.5%.

Contributions are scheduled to begin in November 2026. For the first six months, the funds will accumulate without being accessible; consequently, the resources can only be used to pay indemnities starting in May 2027. Each employer will maintain a dedicated fund managed through a Mutual Fund (FCI) or a Financial Trust (FF), both of which must be Argentine entities authorized by the National Securities Commission (CNV).

The system aims to invest these funds in the capital markets rather than leaving them idle. Investment options include fixed-term deposits (capped at 15%), corporate bonds (capped at 20%), and provincial or City of Buenos Aires public securities (capped at 15%). Notably, there is no specific percentage limit for investments in national government debt, a factor that could potentially channel up to US$4 billion into public securities.