Embed Size (px)
Citation preview
1
M/s . K. A. PanditConsultants and Actuaries
Role of Actuary in Employee
Benef i ts & Others
D a t e : 2 2 n d F e b r u a r y 2 0 1 4
Session Details
Session 1Role of an Actuary
Session 2Accounting Standard 15 & PROPOSED IND AS19
Session 3General Discussion – Current Updates & Open House
2
Life insurance designing and pricing contracts,
monitoring the funds required to provide the benefits promised, and
recommending the bonuses to be added to with-profit policies.
General insurance Reserving
Rating (Pricing)
Capital modelling
Pensions Scheme funding
Investment
Accounting for pensions
Managing risk
Corporate transactions
Individual benefits
3
Health and care In financial planning for the NHS
Evolving health provision models to meet changing needs
Finance and investment Institutional investment, equity,
bond, real estate and other investment
Suggesting the investment Strategies
Enterprise risk management ERM involves considering the
risks of the enterprise as a whole, rather than considering individual risks in isolation
……Role of An Actuary
4
Employee Benefit & AS15R..
End of First Session
Objective is to prescribe Accounting & Disclosure for Employee Benefits against the service rendered by
an Employee.
Talks about the recognition and measurement principles.
Most Popular Accounting Standards Used in India & Most of the Countries
Indian GAAP : AS15 (R)
US GAAP : ASC 715
IFRS : IAS 19 (R)
5
Framed by Institute of Chartered Accountants of India
It is Applicable to all Level I Companies.
Some Relief for Level II & Level III companies in terms of Disclosure requirements.
All the employee Benefits are grouped into four major types;
Short term Employee Benefits
Post Employment Benefits
DB Scheme
DC Scheme
Other Long term Employee Benefits
Termination Benefits
6
7
Para. Reference Deals with
Para. 11 to 16 Recognition and Measurement principle of Short Term accumulated Compensated Absences
Para. 46 & 139 Discounting of Amounts which are fall due more than 12 months after B/s date
Para. 50 to 116Para. 117 to 123
Recognition Principle & Measurement Principle in Respect to DB Plans
Para. 78 Discount Rate
Para. 129 to 132 Recognition & Measurement principle for other Long Term Employee Benefits
8
Objective
a liability when an employee has
provided service in exchange for employee
benefits to be paid in the future; and
an expense when the enterprise
consumes the economic benefit arising
from service provided by an employee in
exchange for employee benefits.
Method of Valuation
Projected Unit Credit Method : Present Value
of All Accrued Benefit on valuation Date on
Projected Salaries at Exit (PBO).
Suggested by GN’s issued by IOAI
Required Under ASC 715 (US-GAAP)
Required Under IAS-19/Revised AS-15
Projected Unit Credit Method
Year 1
Step 1 : Escalated Expected CashFlow considering all decrementsBased on Accrued Benefits/Discontinuance Liability
Step 2 : Taking PV of all future CashFlowsValue of past service liability on projected earning to get PBO
Escalated Year 3
Escalated Year 4
Escalated Year 5
Escalated Year 6….
Escalated Year 2
Time Line
10
Demographic Assumptions
Employee Turnover
Mortality
Financial Assumptions
Future Increase in Salaries or Cost Inflation
Discount Rate
Expected Return on Plan Assets
11
Assumption Base
Future Increase in Salaries or Cost Inflation
Employer’s CallShould be the best estimate for future Considering Past Trend
Employee Turnover Employer’s CallShould be the best estimate for future Considering Past Trend
Mortality IALM 2006-08
Discount Rate Long Term Government Securities (As per AS15)Suitably mapped to Avg. expected future working life
Expected Return on Plan Assets
Based on the Investment Portfolio
12
Age 45
Normal Retirement Age 58
Difference 13
Attrition Rate 0% 5% 10% 20%
Age Survival Rate Survival Rate Survival Rate Survival Rate
46 100.00% 95.00% 90.00% 80.00%
47 100.00% 90.25% 81.00% 64.00%
48 100.00% 85.74% 72.90% 51.20%
49 100.00% 81.45% 65.61% 40.96%
50 100.00% 77.38% 59.05% 32.77%
51 100.00% 73.51% 53.14% 26.21%
52 100.00% 69.83% 47.83% 20.97%
53 100.00% 66.34% 43.05% 16.78%
54 100.00% 63.02% 38.74% 13.42%
55 100.00% 59.87% 34.87% 10.74%
56 100.00% 56.88% 31.38% 8.59%
57 100.00% 54.04% 28.24% 6.87%
58 100.00% 51.33% 25.42% 5.50%
AFS 13 9 7 4
*AFS is after ignoring Mortality rate
What is Gratuity?
‘Gratuity is the payment made by the employer to an employee in appreciation of services rendered by the employee.’
Gratuity is payable immediately on the “EXIT” of employment of the employee after he/she has rendered a continuous service of not less than five years
on retirement, or
on death, or
disablement due to accident or disease.
The Gratuity Act 1972, Amendment (2010), says that benefits should be 15 days salary per year of
service with a maximum of Rs.1,000,000.
The employers can always pay better benefits than those provided under the act.
Mandatory for all employers employing more than 9 employees
Act specifies minimum benefits.
13
The employer has 2 options to Fund the Gratuity Liability
Pay as you go basis
Out of revenue account (Terminal Funding).
Create a Gratuity Trust Fund or With an Insurance Company
By setting up an irrevocable trust fund and contributing to the fund periodically.
14
15
Required Information
• Identification of the Employee
• Date of Birth
• Date of Joining
• Date of Valuation
• Monthly Salary
• Retirement Age
• Benefit Description
• Valuation Parameters
To determine
• Age
• Past service
• Discontinuance liability
• Actuarial Liability
Benefit : As per Gratuity Act (15 days salary for each year of continuous service)
Past Service = 10 Years
Age = 40 Years
Current Salary = 10,000
Vesting Period = 5 Years
Retirement Age = 60 Years
Method of Valuation = Projected Unit Credit Method
Discontinuance Liability = 15/26*10000*10
= Rs.57,692
16
With Salary Escalation Actuarial Liability
6.00% Rs. 41,733
7.00% Rs. 49,047
5.00% Rs. 35,551
Rate of Discounting = 8.00% Salary Escalation= 6.00%
With Discount Rate Actuarial Liability
8.00% Rs. 41,733
9.00% Rs. 35,707
7.00% Rs. 48,973
Type of Benefit Disclosure Requirement as per Rev. AS 15
Reference
Short term Employee Benefits Not Require Para. 23 of Rev. AS15
Post Employment Benefits Mandatory Para. 119 of Rev. AS15
Other Long term Employee Benefits
Not Mandatory Para. 132 of Rev. AS15
Termination Benefits Not Require Other standard may require.
17
Profit & Loss Account
• Current Service Cost
• Interest Cost
• Expected Return on Plan assets
• Past Service Cost
• Recognition of Transition Liability
• Curtailment or Settlement
• Actuarial (gains) or Losses
Balance Sheet Reconciliation
• Opening Net Liability
• Expense from P&L
• Net Liability Transfer in
• Net Liability Transfer out
• Employer Contribution
• Closing Net Liability
An enterprise should disclose the following information about defined
benefit plans
18
ASSUMPTIONS: 01/04/2013 -
31/03/2014
DISCOUNT RATE -- PREVIOUS 7.75%
RATE OF RETURN ON PLAN ASSETS -- PREVIOUS 8.00%
SALARY ESCALATION -- PREVIOUS 6.00%
ATTRITION RATE -- PREVIOUS 5.00%
DISCOUNT RATE -- CURRENT 8.25%
RATE OF RETURN ON PLAN ASSETS -- CURRENT 8.00%
SALARY ESCALATION -- CURRENT 6.00%
ATTRITION RATE -- CURRENT 5.00%
19
TABLE SHOWING CHANGE IN THE PRESENT VALUE OF DEFINED BENEFIT OBLIGATION:
01/04/2013 -31/03/2014
PRESENT VALUE OF BENEFIT OBLIGATION AS AT THE BEGINNING OF THE CURRENT PERIOD
49,698,276
INTEREST COST 3,851,616
CURRENT SERVICE COST 10,211,424
PAST SERVICE COST -- NON VESTED BENEFIT -
PAST SERVICE COST -- VESTED BENEFIT 14,439,226
LIABILITY TRANSFERRED IN -
(LIABILITY TRANSFERRED OUT) -
(BENEFIT PAID) (6,218,389)
ACTUARIAL (GAIN)/LOSS ON OBLIGATIONS 407,232
PRESENT VALUE OF BENEFIT OBLIGATION AS AT THE END OF THE CURRENT PERIOD 72,389,385
20
TABLE OF FAIR VALUE OF PLAN ASSETS:01/04/2013 -
31/03/2014
FAIR VALUE OF PLAN ASSETS AT THE BEGINNING OF THE PERIOD 32,583,137
EXPECTED RETURN ON PLAN ASSETS 2,606,651
CONTRIBUTIONS 18,114,500
TRANSFER FROM OTHER COMPANY -
(TRANSFER TO OTHER COMPANY) -
(BENEFIT PAID) (6,218,389)
ACTUARIAL GAIN/(LOSS) ON PLAN ASSETS 7,287,116
FAIR VALUE OF PLAN ASSETS AT THE END OF THE PERIOD 54,373,015
21
ACTUAL RETURN ON PLAN ASSETS:01/04/2013 -
31/03/2014
EXPECTED RETURN ON PLAN ASSETS 2,606,651
ACTUARIAL GAIN/(LOSS) ON PLAN ASSETS 7,287,116
ACTUAL RETURN ON PLAN ASSETS 9,893,767
22
Profit & Loss Account Balance Sheet Reconciliation
As required under Accounting Standard-15, Actuarial Gain and Loss is
recognized in the year of incurrence.
Current Service Cost 10,211,424
Interest Cost 3,851,616
(Expected Return On Plan Assets)
-2,606,651
Actuarial (Gains)/Losses -6,879,884
Past Service Cost-Vested 14,439,226
Past Service Cost-Non Vested -
Transitional Liability -
Expense Recognized In P&L 19,015,731
Opening Net Liability 17,115,139
Expense As P&L 19,015,731
Net Transfer In -
(Net Transfer Out) -
(Employer's Contribution) -18,114,500
Net Liability/(Asset) Recognized In The Balance Sheet
18,016,370
23
Profit & Loss Account Balance Sheet Reconciliation
Current Service Cost 10,211,424
Interest Cost 3,851,616
(Expected Return On Plan Assets)
-2,606,651
Past Service Cost-Vested 14,439,226
Past Service Cost-Non Vested -
Transitional Liability -
Expense Recognized In P&L 2,5895,615
As required under Proposed IND AS19 , Actuarial Gain and Loss is not
required to recognize in profit or loss immediately.
Opening Net Liability 17,115,139
Expense As P&L 2,5895,615
Net Transfer In -
(Net Transfer Out) -
Net Expense Recognized In SORIE (OCI)
-6,879,884
(Employer's Contribution) -18,114,500
Net Liability/(Asset) Recognized In The Balance Sheet
18,016,370
24
EXPERIENCE ADJUSTMENT:01/04/2013 -
31/03/2014
ON PLAN LIABILITY (GAIN)/LOSS 4,180,891
ON PLAN ASSET (LOSS)/GAIN 7,287,116
25
• Current And Non-Current Liability Bifurcation as Per Revised Schedule VI
• For an Un-Funded Scheme
Current Liability Expected Pay-out based on all decrements and Non-Current Liability as Balancing
figure
• For a Funded Scheme
Current Liability is Expected Contribution based on Net Liability Status with appropriate cap as per
Statutory limit and Non-Current Liability as Balancing figure
• Additional Requirement Under IAS 19R & ASC 715:
• Next Year P&L Other than Direct Recognition Approach.
• Future Cash Flow for Next 10 years on Account of Benefit’s Payable on separation.
• Accrued Benefit Obligation (ABO).
• Other than Direct Recognition Approach, P&L would be less volatile in IAS 19R & ASC 715.
26
……Employee Benefit & AS15R
27
General Discussion…..
End of Second Session
M/S. K.A.PANDIT
[Consultants and Actuaries]
Website : www.ka-pandit.com
Email : [email protected]
Tel:022-42922250/022-42922231
