A lot of discussion is going on for funds requirements to meet the cost of pension updation. In the present write-up, I have tried to explain how banks have systematically milked the pension funds to shore up their operating profits for more than two decades.Let’s first look towards the provisions of “Employees‟ Provident Funds and Miscellaneous Provisions Act, 1952“ (PF Act.)
As per the provisions of the PF Act, an employer is mandatorily required to deposit employer’s contribution & employees contribution of provident fund with the PF Commissioner in terms of section 6, 7A, 8 of the Act. However, the government can grant exemption to a scheme of provident fund & pension fund created & administered by the employer, provided the benefits of the same are not less favourable than the provisions under the Act. Thus in Public Sector Banks, after the implementation of the Pension Regulations ……...BANK (Employee’') Pension Regulations, 1995, employer’s and employees contribution towards PF is being credited in the following funds.
1. Employee’s contribution goes to exempted “Employees Provident Fund”
2. Employer’s (Bank’s) contribution towards provident fund goes to;
Employee’s Provident Fund, of the employees who have opted for Contributory Provident Fund.
Employee’s Pension Fund, of the employees who have opted for Pension Scheme in lieu of Contributory Provident Fund.
Here are few aberrations of the system;
Provident fund Trust has one nominee each of officers & employees associations, rest of the trustees of the trust are nominated by the concerned bank. In contrast, all the trustees of the Pension fund Trust are nominated by the concerned bank. Equity demands that Pension Fund Trusts should have nominees of retirees associations to watch the interests of retirees.
As per the provisions of the PF Act. whenever the yield of the investment, in a particular financial year, of the exempted provident fund is below the rate of interest declared by EPF, the shortfall is made up by the employer (Bank), whereas this provision of the Act. is not being followed by the banks in case of pension funds (in respect of employer’s - bank’s contribution for the employees who are yet to retire). The question is Why ?
As per pension regulations, an employee is eligible for pension after the completion of the service of 20 (twenty) years. In case an employee resigns before 20 years of service, he is neither eligible for pension nor for payment of employer’s contribution towards provident fund. This is blatant discrimination of employees who had opted for Pension.
“Employees‟ Provident Funds and Miscellaneous Provisions Act, 1952“
# Section 17. Power to exempt.—(1) The appropriate Government may, by notification in the Official Gazette and subject to such conditions as may be specified in the notification, exempt, whether prospectively or retrospectively, from the operation of all or any of the provisions of any Scheme—
(a) any establishment to which this Act applies if, in the opinion of the appropriate Government, the rules of its provident fund with respect to the rates of contribution are not less favourable than those specified in section 6 and the employees are also in enjoyment of other provident fund benefits which on the whole are not less favourable to the employees than the benefits provided under this Act or any Scheme in relation to the employees in any other establishment of a similar character; or
(b) and establishment if the employees of such establishment are in enjoyment of benefits in the nature of provident fund, pension or gratuity and the appropriate Government is of opinion that such benefits, separately or jointly, are on the whole not less favourable to such employees than the benefits provided under this Act or any Scheme in relation to employees in any other establishment of a similar character:
Provided that no such exemption shall be made except after consultation with the Central Board which on such consultation shall forward its views on exemption to the appropriate Government within such time limit as may be specified in the Scheme.
1A) Where an exemption has been granted to an establishment under clause (a) of sub-section (1),—
(a) the provisions of sections 6, 7A, 8 and 14B shall, so far as may be, apply to the employer of the exempted establishment in addition to such other conditions as may be specified in the notification granting such exemption, and where such employer contravenes, or makes default in complying with any of the said provisions or conditions or any other provisions of this Act, he shall be punishable under section 14 as if the said establishment had not been exempted under the said clause (a);
(b) the employer shall establish a Board of Trustees for the administration of the provident fund consisting of such number of members as may be specified in the Scheme;
(c) the terms and conditions of service of members of the Board of Trustees shall be such as may be specified in the Scheme;
(d) the Board of Trustees constituted under clause (b) shall—
- (i) maintain detailed accounts to show the contributions credited, withdrawals made and interest accrued in respect of each employee;
- (ii) submit such returns to the Regional Provident Fund Commissioner or any other officer as the Central Government may direct from time to time;
- (iii) invest the provident fund monies in accordance with the directions issued by the Central Government from time to time;
- (iv) transfer, where necessary, the provident fund account of any employee; and
- (v) perform such other duties as may be specified in the Scheme.
(1B) Where the Board of Trustees established under clause (b) of sub-section (1A) contravenes, or makes default in complying with, any provisions of clause (d) of that sub-section, the Trustees of the said Board shall be deemed to have committed an offence under sub-section (2A) of section 14 and shall be punishable with the penalties provided in that sub-section.
Following are the provisions of relevant pension regulations;
“Punjab National Bank (Employees’') Pension Regulation, 1995”
# Regulation 7. Composition of the Fund.
The Fund shall consist of the following, namely,
(a) The contribution by the Bank at the rate of ten per cent per month of the pay of the employee;
(b) the accumulated contributions of the Bank to the Provident Fund and interest accrued thereon upto the date of such transfer in respect of the employees;
(c) the amount consisting of contributions of the Bank along with interest refunded by the employees who had retired before the notified date but who opt for pension in accordance with the provisions contained in these Regulations;
(d) the investment in annuities or securities purchased out of the moneys of the Fund and interest thereon;
(e) amount of any capital gains arising from the capital assets of the Fund;
(f) the additional annual contribution made by the Bank in accordance with the provisions contained in Regulation 11 of these Regulations;
(g) any income from investments of the amounts credited to the fund;
(h) the amount consisting of contribution of the Bank along with interest refunded by the family of the deceased employee.
# Regulation 10. Books of accounts of the Fund.
(1) The accounts of the Fund shall contain the particulars of all financial transactions relating to the fund in such form as may be specified by the Bank.
(2) Within one hundred and eighty days from the closing of each financial year, the trust shall prepare a financial statement of the trust indicating therein the general account of assets and liabilities of the trust and forward a copy of the same to the Bank. Within sixty days from the date of publication of the “Balance sheet of the Bank”, the trust shall prepare a financial statement of the trust indicating there in the general account of assets and liabilities of the trust and forward a copy of the same to the Bank. (AMENDED WITH NOTIFICATION IN GAZETTE ON 13/11/2010)
(3) The accounts of the fund shall be audited in accordance with the provisions of Section 10 of the Act.
Regulation No. - 11. Actuarial investigation of the Fund.
The Bank shall cause an investigation to be made by an Actuary into the financial condition of the Fund every financial year on the 31st day of March, and make such additional annual contributions to the Fund as may be required to secure payment of the benefits under these regulations:
Provided that the Bank shall cause an investigation to be made by an actuary into the financial condition of the fund. As on the 31st day of March immediately following the financial year in which the Fund is constituted.
Regulation No. - 13. Payment out of the fund:
The payment of benefits by the trust shall be administered for grant of pensionary benefits to the employees of the Bank or the family pension to the families of the deceased employees of the Bank.
So far so good, but the main lacuna lies in the rules & regulations of the “Pension Fund Trust” of which relevant rules & regulation, framed in terms of IBA circular No. PD/CIR/76/G(ii)/1905 Dated March 31,1994, reads as under;
Rules and Regulations of (Name of the Bank) Bank Employees Pension Fund Trust..
# 17. CONTRIBUTIONS
These shall be paid by the Bank to Trustees in respect of each employee the contribution of … % o this pay every month or within 15 days from end of the previous month.
These shall also be paid by the bank in consultation with Actuary and the bank contribution to meet the shortfall in the requirement of the scheme.
PROVIDED that the contribution payable by the bank in any year in respect of any member in terms or sub-paragraph (i) shall not exceed 25% of the salary paid to the members during the year.
# 18. The Bank may from time to time direct the Trustees to apply any amount for the time being standing to the credit of the surplus account or any part of such amount towards a contribution payable by the Bank and such application shall not be deemed to be withdrawal or recovery by the Bank of its contribution to the Fund.
This rule # 18 of the pension fund trusts is in violation of the letter & spirit of the provisions of PF Act. This rule in the “Pension Fund Trust Deed” is being blatantly used by the banks for avoiding bank’s contribution towards the provident fund as per the PF Act., for which action can be initiated under the provisions of section 14 of the PF Act. against the Bank & its controlling officers.
During financial year 2016-17, Punjab national Bank transferred a sum of Rs. 2026 crores (The Hindu - 03.07.2017) from Pension Fund and Gratuity Fund to Bank’s Profit & Loss A/c reportedly on actuarial valuation but allegedly to shore up the bottom line as evident from the audited balance sheet of the bank as under;
1. Extracts of the annual report of the Punjab National Bank for the year 2016-17 .
" Significant Accounting Policies , (Page -128 to 140)
8. Employment Benefits
● PENSION: (Page -138)
Pension liability is a defined benefit obligation and is provided for on the basis of an actuarial valuation. The scheme is funded by the bank and is managed by a separate trust.
C. Changes in Fair Valuation of Plan Assets (Page -160)
In accordance with AS-15 issued by ICAI, during the year while considering the fair value of plan assets relating to pension and gratuity fund being long term benefits of employees, interest accrued on investments has also been taken into account as against principal amount in earlier years. Consequent to this, employer contribution to pension and gratuity funds representing excess of fair value of plan assets over present value of obligation amounting to Rs.2026.60 crores has been credited to “Payments to and Provisions for Employees- Employee Cost ” during the year. Figures of previous year are not comparable to that extent.
Financial Statements (Solo) - Independent Auditors’ Report (Page.183-185)
Emphasis of Matter (Page -184)
7. Without qualifying our opinion, we draw attention to Note no. 15 C regarding valuation of Plan Assets of long-term benefits , resulting in excess of fair value of plan assets over present value of obligation amounting to Rs.2026.60 crores credited to “Payments to and Provisions for Employees- Employee Cost ” with consequential impact on results for the year.
Consolidated Financial Statements - Independent Auditors’ Report ( Page. 238-240)
Emphasis of Matter (Page -240)
10. Without qualifying our opinion, we draw attention to Note no. 4.5 C regarding valuation of Plan Assets of long-term benefits ,resulting in excess of fair value of plan assets over present value of obligation amounting to Rs.2026.60 crores credited to “Payments to and Provisions for Employees- Employee Cost ” with consequential impact on results for the
Year."
Analysis
As per regulation no 11, the purpose of annual Actuarial investigation of the Fund is solely to make such additional annual contributions to the Fund as may be required to secure payment of the benefits under these regulations:
There is no regulation in the Pension Regulations which could be construed to authorize the Management of the bank (Punjab National Bank) or the Trust (Employees Pension Fund Trust) to write back the trust fund to the bank ,on any pretext whatsoever. Trust funds can be utilized only for the purposes mentioned & defined in Regulation 13.
In the absence of any provision authorizing such write back, the action of the management of the bank / trustees, amounts to misappropriation of the Trust Fund (Punjab National Bank Employees Pension Fund).
The auditors in their audit report on page 184 & 240 under the head “Emphasis of Matter” smartly failed to mention that “Plan Assets” are actually assets and the property of Pension Fund Trust, which is a separate & independent entity , of which Punjab National Bank is only a contributor of the trust.
The AS15 (Accounting Standards 15) is a financial tool to ascertain adequateness of the provisions of plan assets ( in-house) for employees benefits, devised by ICAI. It can’t override the provisions of Law and / or Regulations promulgated by the Govt. of India through Gazette notifications.
Following is the text of Starred Parliamentary Question and the reply of the Govt. given on the floor of the house.
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
LOK SABHA
STARRED QUESTION NO: 354
ANSWERED ON:04.01.2019
Employees Pension and Gratuity Funds
KIRIT SOMAIYA
(a) whether the Government is aware of the misappropriation of Employees Pension Fund Trust and Gratuity Fund by the Punjab National Bank in the year 2016- 17 and if so, the details thereof;
(b) whether the Government has taken this issue seriously and issued direction for immediate audit to verify the quantum of misappropriation of money and if so, the details thereof; and (c) whether any other action has been taken by the Government in this regard, if so, the details thereof and if not, the reasons therefor?
Will the Minister of Finance be pleased to state:-
ANSWER
The Finance Minister
(a) to (c): A Statement is laid on the Table of the House.
LOK SABHA STARRED QUESTION NO. *354 FOR ANSWER ON THE 4TH JANUARY, 2019 REGARDING ‘EMPLOYEES PENSION AND GRATUITY FUNDS TABLED BY DR KIRIT SOMAIYA, MEMBER OF PARLIAMENT
(a) to (c): A reference was received from the Hon’ble Member regarding misappropriation of Employees Pension Fund Trust and Gratuity Fund in Punjab National Bank (PNB). The same as referred to PNB for placing the matter before the bank’s Audit Committee of the Board for necessary action. PNB has informed that there is no misappropriation of funds, and that the pension fund and gratuity fund trusts are separate entities and the bank is not authorised to operate the trusts’ accounts or transfer any amount from the trust. It has further informed that adequate funds for pension and gratuity are maintained as per actuarial valuation report without any exception, that the same are in strict compliance of Accounting Standards AS-15, and that these funds are duly audited by the bank’s Statutory Central Auditors every year. PNB has also apprised that no amount was taken back or withdrawn from the trusts’ accounts. With regard to placement of the matter before the bank’s Audit Committee of the Board (ACB), the bank has further apprised that the bank’s annual financial accounts for the financial year 2016-17 are audited by the bank’s Statutory Central Auditors and have already been approved by the ACB and the Board. The bank has reported that it has initiated steps to further lay the reference received as well before ACB.
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Its my opinion the cost of updation of pension can be comfortably met from rectification of the past short contributions taking support of rules of Pension Fund Trusts & reversal of entries of unauthorised withdrawals from the Pension Funds. I appeal the retirees organisations to kindly investigate the above two aspects, which affect the Pension Funds adversely.
Disclaimer: The sole purpose of this blog is to create awareness on the subject and must not be used as a guide for taking or recommending any action or decision. A reader must do his own research and seek professional advice if he intends to take any action or decision in the matters covered in this blog.
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