Employee Benefit Solutions

Date : 27th January, 2010

Presented by : Shailesh Mehta

Tiger Trail Corporate Solutions

843/1 MG Road, New Delhi - 30
011-65095476, 9811825077

1
Content
• Employee Benefits Solutions in the Market
• Group Term Insurance
• Group Gratuity
Employee Benefit Scenario In
India
 Group Life Insurance

Group Life Insurance is single policy which covers the lives of the employees /
members of an organization

Group Life insurance can be a great incentive in recruiting and

retaining talent


Increases motivation and employee loyalty


Provides financial freedom to your employees
 Benefits for Employer


Provides financial security to the employees at a minimal cost


Serves as a strong retention tool and as a loyalty building measure


Hassle free administration and enrollment – Free Cover Limit


Premium payable is an approved business expense under the
current Income Tax laws.#


Allows for uniform business expense to cover fluctuating mortality
risk
Benefits for Employee


Provides financial security to the family and dependents of the
employee


Hassle free enrollment


The Face Amount is not taxable in the hands of the beneficiary


Cheaper than individual coverage


Option available to convert from Group to Individual policy while
leaving the company
Some GTL Concepts

• Actively at Work clause

• Free cover limit

• Medical Underwriting
Service Delivery

• Claim

• Turn-around Time

• Documentation advice

• Addition & Deletion of Members

• Customer Service
Details Required to Generate
Quote
• Employee Name
• Number
• Gender
• Date of birth
• Designation
• Salary
• Past death experience for 3 years
What is Gratuity ?

Gratuity is
– A gratuitous payment
– A parting gift

Supreme Court on Gratuity:

“Gratuity is one of the efficiency devices meant for orderly and humane
elimination of superannuated and disabled employees whose retention in
service would be detrimental to efficiency.
What is Gratuity

• Gratuity to be paid on retirement, termination, superannuation, death

and disability of an employee

• Liability accrues every year of service put in by the employee

• Gratuity liability will be proportional to changes in salary

• Formula for calculation = 15/26*last drawn salary*no. of years

served
Why pay Gratuity

• Statutory obligation for employers

• Retirement benefit for the employees

• Tax free in the hands of employee till Rs.350000

• Good HR initiative (Gratuity can be bettered by the employer)

• Employee motivation to stay in the Company for a considerable time

When should an employer pay
gratuity

• Obligatory for an employer having 10 or more

employees

• Gratuity payable to an employee :

 On termination, superannuation, retirement, death and disability

 After the employee has rendered continuous service for not less than 5 years *

* (Service of 5 years not necessary in case of death and disability)

Options to meet your Gratuity Liability
Create an
Pay as you go Internal Reserve

Company

Fund
Gratuity Liability

Self managed Insurance Managed

Gratuity Plan
Need to fund for Gratuity

• Bulk recruitments lead to bulk retirements

• There may by large payments in certain years

• Death / Accidents / Industry slump

• Avoid overstated profits in books

• In accord with the latest accounting standards

Gratuity Solutions
 Gratuity Features

• Scheme will be administered through the creation of a Trust

• Guaranteed Investment options

• Investment in two Investment Fund options - Debt and Balanced

• Switching between investment fund options allowed

• Scientific actuarial estimation of past service gratuity liability

• Future service gratuity can be covered through a group term insurance plan
Service

• Mutually agreed Service Level Agreements

• Agreed Turn Around Times for various deliverables

• Focused service:
• Separate Relationship Manager for handling the accounts
• Service Delivery Team for Post Sale servicing

• Assistance in formation of Trust

• Facilitation for transfer of funds from your existing Insurer etc
• Panel for AS-15 certification
Investment Pattern

• Two Fund Options

– Debt
• To earn regular income by investing in high quality Fixed Income
securities

– Balanced
• To generate Capital appreciation and current income, through a
judicious mix of investments in equities and Fixed securities.

• Conservative – Long Term approach

• No outsourcing of investments
• Investment Committee – Seven Member team
Process

 Member information to be given with benefit structure

 Actuarial estimation of funding rate will be provided by MetLife

 Board Resolution for the formation of a trust and complete other

documentation

 Application Form to be Completed

 Collection of premium
Details Required to Generate
Quote
• Employee Name
• Number
• Gender
• Date of birth
• Designation
• Salary
• Past death experience for 3 years
• Definition of gratuity with regards to the specific trust
PAY AS YOU GO METHOD

• Characteristics:
• Pay gratuity liability as and when it arises

• There is no creation of any reserve or provision in the books of

accounts

• Disadvantages:
• Not a systematic way of paying off gratuity liability

• Overstatement of profits leading to Higher taxes and Dividends

• Unexpected deaths/disabilities will impact the P&L to a large extent

• Not compliant with AS 15

BACK
 Internal Reserve
• Characteristics:
• Provision is made in books of accounts
• There is a reflection of accrued liability
• Profits are not overstated

• Disadvantages:
• The provision is notional and not actual
• Money can get invested in the business
• No tax benefit
• Creditors have claim to the reserve
• Unexpected deaths/disabilities will impact the P&L to a large extent

BACK
Self Managed Gratuity Fund

Characteristics:
• Set up an irrevocable trust

• Trustees will invest the funds and make gratuity payments

• Tax benefits for the Company ( Claim as business

expenditure)

• Trustees will have control over the investments

» Investments can be made in accord with Company’s risk

appetite.
Self Managed Gratuity Fund

• Disadvantages:

– Investment options are limited

– Trustees do have a business role to play

– Trustees are responsible for administration and investment of funds in addition to their

busy business roles

– Liquid funds to be maintained to pay immediate gratuity requirement

– Actuarial valuation complexities

– Securities will be bought in small amounts which leads to increased

costs

BACK
Characteristic of a Well Managed
Gratuity Fund
• Wider Investment Options

• Optimum returns for the investments

• Better returns will lead to lesser costs of funding for gratuity liability

• Tax benefits for the Company ( Claim as business expenditure)

• Pooling of various gratuity funds will reduce the costs

• Saves time for Company Officials

• Control of funds remain with the trust

• Liquidity management is very efficient

Thank You