Download - 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
BACKBACK