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Trusts may have to park funds with EPFO 25 Jun, 2011, 0249 hrs IST, ET Bureau

NEW DELHI: More than 2,000 establishments that manage their employees provident fund accounts may soon have to handover the entire corpus to the Employees Provident Fund Organisation, or EPFO. The top policy-making body of EPFO, the Central Board of Trustees, has endorsed a proposal, which seeks to take away the trusts right to manage the funds. The move is aimed at securing the retirement savings of nearly five million subscribers who have contributed an estimated Rs 1 lakh crore to the corpus of these trusts. Hundreds of organisations turn sick every year and fail to pay the provident fund dues to their workers, Labour Secretary PC Chaturvedi said. "The new provision would ensure that workers money is safe in such cases," he said. The EPFO has submitted its proposal to the labour ministry, which is now preparing a Cabinet note to amend the Employees Provident Fund and Miscellaneous Provisions Act of 1952. As per the proposed amendment, exempted trusts will manage only the PF accounts and deposit funds left after settlement of claims with the EPFO every month. At present, companies meeting the eligibility criteria are allowed to set up trusts to manage the PF contributions of their employees. This exemption, however, is subject to investment norms. If the amendment is approved by the Cabinet and ratified by Parliament, exempted trusts would lose the right to invest the provident fund corpus. Organisations representing the workers have welcomed the move. This is certainly a progressive step because private trusts were not doing justice to workers funds, Sankar Saha of the All India Trade Union Congress said. The trusts were not making appropriate investments. Last year, 42 companies managing their own provident fund accounts had protested against the EPFOs decision to raise the rate of interest on PF accumulations, saying they could not match the 9.5% interest declared for 2010-11. The EPFO had declared higher ininterest after it found a surplus of Rs 1,731 core in its interest suspense account. These trusts had said that unlike the EPFO, they did not have surplus cash to pay the higher interest. They also said that their average yields in the past had been below 8.5%, the interest fixed by the EPFO in the previous five fiscals. This led the EPFO to order an examination of their accounts. The examination revealed that the average yield of the 42 funds was between 7.5% and 8%, which was lower than what the EPFO was earning despite its conservative investments. But there is apprehension that the shift will affect service standards, as private PF trusts are usually faster in addressing subscriber grievances. A representative of the employers on the Central Board of Trustees, Babulal B Todi, said employers needed time to understand the implications of the new proposal. The labour ministry also intends to do away with the list that specifies the industries, which come under the purview of the EPF Act. Instead, it plans to issue a list of establishments on whom the Act would not apply.

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Trusts may have to park funds with EPFO

"The government will then not have to prove to an erring establishment that it falls within the EPF Act. If it is not on the exempted list, then it is definitely included," an official said. The amended EPF Act would also ensure that wages on which PF contributions are payable are not less than the minimum wages prescribed by the government. Many companies split employees salaries into several heads. This reduces their basic pay on which the PF contribution is calculated. The EPFO manages over Rs 3 lakh crore of 47 million subscribers annually. It mainly invests in government

securities and public sector bonds. The Central Board of Trustees has also decided to extend the deadline for appointment of new fund managers to August 31, and allow the State Bank of India to continue as an interim fund manager until then. The EPFO hopes to complete the process by the end of July. The board gave its nod to the proposal of appointing a custodian for EPFO securities, separate from the fund managers.