basic gtl & gratuity training force 1

Employee Benefit Solutions

Date : 27th February 2009Presented by : Sanjeev Chellappa

Content

• Employee Benefits Solutions in the Market• Group Term Insurance• Group Gratuity

Employee Benefit Scenario In India

Group Life Insurance

Group Life insurance can be a great incentive in recruiting and retaining talent

Increases motivation and employee loyalty

Provides financial freedom to your employees

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

members of an organization

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

END OF PART 1

QUESTIONS

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 Internal Reserve

Fund Gratuity Liability

Insurance ManagedGratuity Plan

CompanyCompany

Pay as you go

Self managed

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

MetLife Gratuity Solution

By Sanjeev Chellappa

Product

• Unit-linked non-participating scheme

• designed to help the organization to scientifically estimate gratuity

liability.

• Flexible plan features.

• Customization of investment option commensurate with the

required risk/return profile.

By Sanjeev Chellappa

Met Gratuity Features

• Scheme will be administered through the creation of a Trust

• 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

By Sanjeev Chellappa

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

By Sanjeev Chellappa

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

By Sanjeev Chellappa

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

Thank You

Questions

By Sanjeev Chellappa

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 BACK

By Sanjeev Chellappa

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

BACKBACK

By Sanjeev Chellappa

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.

By Sanjeev Chellappa

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

BACKBACK

By Sanjeev Chellappa

Life Insurance Company - MetLife

Characteristics:

• 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

By Sanjeev Chellappa

Life Insurance Company - MetLife

Disadvantages:

• Prudence of service provider will determine the returns

CHOOSE THE RIGHT SERVICE PROVIDERCHOOSE THE RIGHT SERVICE PROVIDER

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