The Hindu : Assocham strategy to protect retirement funds

Online edition of India's National Newspaper
Wednesday, Jan 15, 2003

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National

Assocham strategy to protect retirement funds

By Our Special Correspondent

NEW DELHI Jan. 14. To protect the corpus of the employees retirement benefits funds, the Associated Chambers of Commerce and Industry of India (Assocham) has suggested a eight-pronged strategy to ameliorate the problems being faced by exempted establishments under the Employees Provident Funds and Miscellaneous Provisions Act 1952.

It has recommended that the Centre ensure that the State Governments honour their commitments, in the minimum possible time, wherever they have guaranteed the securities and provide for interest compensation for the period of delay of payment of interest or repayment of principal.

State Government undertakings should be prevented from raising further finance wherever there have been defaults by them so that such lapses do not recur. The Government should restart accepting money in the Special Deposit Account and the procedure for withdrawal of money for settlements and a mechanism should be developed to make them easier.

The rate of interest declared by the Central Government under the EPF Act should be a market-related rate. This is necessary as many of the exempted Provident Funds would not be able to achieve the present rate of 9.5 per cent if they invest the contributions in non-risky investments. As a result, such funds would run the risk of the exemption being withdrawn and the additional risk of not complying with the conditions of exemption.

Public sector undertakings as well as State Government undertakings issuing securities should be subjected to a compulsory rating exercise.

Moreover, the investment pattern should be made flexible to take care of the adverse market conditions, the Assocham said.

However, it has been observed that cases of default have taken place in respect of securities guaranteed by State Governments due to various reasons, both in respect of interest and principal payments. As such, the trusts are facing financial difficulties in complying with financial commitment to their employees.

There is also an apprehension with regard to whether the investments made in securities guaranteed by State Governments will be realisable as the financial position of some State Governments is not good and they are time and again defaulting in payment of interest as well as principal money.

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