The decision is significant since many exempted funds were running a deficit after EPFO increased the PF rate to 9.5% this year from 8.5% in the previous year. Since the funds could not use their reserves to meet any shortfall, they had a tough time meeting the deficit.
The EPFO managed to fund the additional 1% interest cost after it changed its accounting policy from cash based to accrual based, which resulted in a surplus of around over . 1,731 crore.
In May this year, EPFO had issued an internal circular addressed to all Regional Provident Fund Commissioners (RPFCs), with one of the conditions being , that in the event of any loss to the trust as a result of defalcation, wrong investment decision or any deficiency in the interest rate compared to statutory rate, the employer shall be liable to make good the loss or interest.
The circular added, “You are, therefore , directed to ensure that wherever losses to the trust have been reported, the same is made good by the employer or establishment and is not adjusted against previous years’ surplus or reserves of the trust.” The new circular will delete the line, “or any deficiency in the interest rate compared to statutory rate” in paragraph 7. Mr Chatterjee was speaking at a seminar on the challenges facing retirement funds, organised by AK Capital. Speaking to ET on the sidelines of the seminar, he said exempted funds will be free to utilise and dip into their PF Trust reserves to meet the statutory payout rate.
“The formal notification in this regard would be posted on the EPF website soon,” he said. Accumulated reserves and surplus formed from excess income over expenditure can be utilised to meet the shortfall to declare higher rate of interest, or to match the rate of interest as may be declared by EPFO, in any case. These trusts are required to either match or better the interest rate declared by CBT, EPF and have to follow the investment pattern notified by the Ministry of Labour.
He said a decision has been taken that PF money will not be invested in equities. When asked about next year’s rate of return for EPFO subscribers, he replied, “The 9.5% return is not sustainable. Next year’s rate of return will be decided later and it is difficult to comment on this right now.”
He added that accountholders would get the benefit of improved rate of return on deposits from the next fiscal from the income on frozen inoperative accounts.
Source:Economic Times
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