Karnataka Power Sector Reforms

-Labour issues & Terminal benefits-

August 24, 2010

Bengaluru

Resource persons: B.N. Sathyaprema Kumar, General Manager( HRD) BESCOM Shivanna, Controller of Accounts, Pension Trust, KPTCL

Contents

• Tripartite agreement highlights

• Transfer of posts and personnel

• GoK obligations

• Administration of terminal benefits

– Pre-unbundling

– Reform initiatives

– Post unbundling

– Mode of funding & fund management etc.

Tripartite Agreement Highlights

• Upon transfer to the Corporate entities the existing service conditions

will continue

• Protection of past service for all service benefits

• There will no retrenchment of employees on account of restructuring

and their status and service conditions will not be changes without prior

agreement with the Union/Associations

• The present system of bipartite negotiations with regard to Wage

settlements shall continue

Tripartite Agreement Highlights

• Government and successor companies guarantee the payment of

pension including Dearness relief and other terminal benefits that are in

force

• All existing welfare measures viz., medical reimbursements,

compassionate appointments etc. will continue

• Transfer of all accumulations in various funds i.e. superannuation, PF,

Family benefit etc., to the successor entities

• Existing work load norms to continue and changes if any will be finalized

in consultation with Employees Union & Associations

• If any of the above commitments are not honoured by the successor

companies, the State Government shall take the full responsibility to

implement them

Transfer of Personnel & posts • As per the Transfer scheme the posts and the specified personnel in

each ESCOM shall stand classified, transferred and allocated to the

services of relevant ESCOM with effect from the relevant effective date

of the Transfer scheme

• Transfer of specified personnel and posts to ESCOMs was done on as is

where is basis as per the Tripartite Agreement

• In the transfer scheme Personnel remaining with KPTCL were also

allowed to exercise their option of being absorbed in an ESCOM in

accordance with rules

Transfer of Personnel & posts

• All specified personnel shall be deemed to be on deputation from KPTCL

in relevant ESCOMs until he or she is absorbed in an ESCOM pursuant to

the option exercised

• Option facilities were given to both “State-wide cadre” as well as “Other

than State wide cadre” employees prescribing a time frame

• Status, scale of pay, entitlement to service benefits and seniority were

protected

• “Personnel Allocation and Absorption Committee” was envisaged

Transfer of Personnel & posts • Transfer of specified personnel to ESCOMs is subject to the following

conditions:-

• Conditions of service will not be inferior to those applicable them before the effective date

of transfer

• Shall have continuity of service

• Benefits of service accrued before the effective date of transfer shall be fully recognized

• Transfer and absorption shall be subject to the orders that may be passed by the Courts

• Protection of services of the personnel till their superannuation, irrespective of the persons

who own the ESCOMs except on grounds of law

• Pay revision and wage settlements to continue according to the present system

• All terms and conditions as per Tripartite Agreement are binding on ESCOMs

Due to an unresolved legal dispute between one of the Employees Associations

and KPTCL & GoK, employees options have not been finalized as yet

GoK obligations

• State Government (not ESCOMs) is liable for making arrangements in regard

to funding of the pension funds and all statutory and personnel related

funds

• Until such arrangements are made, discharge of all unfunded liabilities for

the personnel who retire after the effective date of transfer shall be

arranged by KPTCL

• Addressing issues like, Actuarial valuation, Formation Trusts, Funding,

Disbursement of Terminal benefits etc.

Administration of terminal benefits

• Pre-unbundling

CCA/FA

KPTCL

Division

Pension

sanc.authority

Banks

Sub-

Division

GoK (No direct role

except releasing

subsidy to achieve 3% RoR)

Submission of pension

papers for process

Submission of pension

papers for sanction

Submission of pension

document for authorization

Revenue

subsidy flow

Receipt of PPO in the jurisdictional office

where employee wishes to draw pension

Note: Prior to unbundling,

terminal benefits payable as per

Regulations were “Debited to

Employees Pension fund A/c to

which a Contribution equal to

1/8th of pay of the employess

was made annually by debit to

P&L A/c.

Employees (Retired

& Family pensioners)

Disbursement of pension

Reform Initiatives

• Actuary was appointed in 1999 to assess the terminal benefits liability,

which came to around Rs. 2309 Crs. for about 40,733 employees

• One of the main objective of Reform agenda was to fund the unfunded

liability of Terminal benefits of the employees

• Decision was taken by the GoK in the year 2000 to create two separate

Trusts namely, Pension Trust and Gratuity Trust so as to administer, monitor

and maintain the funds towards terminal benefits of employees

• The Pension and Gratuity Trusts came into existence on 12-1-2001

Steps taken for creation of trusts

• Creating a separate Pension Trust team headed by a Controller

of Accounts in KPTCL to manage all pension trust related

matters

• Obtaining the approval to set up the Trust from Government

and KPTCL Board

• Preparation and finalization Trust Deed

• Obtaining the approval from the Assessing officer of the

Income Tax Department

Functioning of the Trusts • The KPTCL and ESCOMs Pension and Gratuity Trusts commenced its

functions like disbursement of Pension/Family pension with effect from July 2003

• There are 16 Trustees.

• The Trusts are headed by Director Finance as Chairperson of the Trusts. • Director Finance Chairperson

• Deputy Secretary B&R Govt. of Karnataka

• Director (A&HRD), KPTCL

• Company Secretary KPTCL

• FA (A&R) KPTCL

• FA (Internal Audit) KPTCL

• FAs of all Escoms

• General Secretary of Employees union/Engineers Association/

Accounts Officers Association/SC &ST Employees Association

• Controller P&GT as Convener and Managing trustee

Administration of terminal benefits

• Post-unbundling

FA

KPTCL

Division

Pension

sanc.authority

Banks

Sub-

Division

GoK (Will directly release

the funds required for the

Trusts from time to time)

Submission of pension

papers for process

Sanction

process

Authorization

process

Receipt of PPO in the

jurisdictional office

where employee

wishes to draw pension

Employees (Retired

& Family pensioners)

Master

Trusts

ESCOMS/

KPTCL

Fund requisition for disbursement

Recoupment of Funds

Contribution to Master Trust as

per actuarial valuation

Note: Post unbundling

ESCOMs and KPTCL contribute

to the Master Trust at the rates

determined from periodical

actuarial valuation. The

contribution made to the Trusts

is Debited to the P&L account of

the respective company. Funds

required for disbursements are

directly released by the Master

Trust. Any temporary short fall is

managed as “Receivable from

Master Trusts” Disbursement of pension

Mode of funding the liability

• The fund requirement of the Trusts to discharge the Gok’s liability was

assessed as on 31-05-2002.

• For the then existing pensioners of 19,378 and active employees 36,656,

the funding requirement was assessed at Rs.4703 Crs.

• The present liability as per the valuation as on 31st March 2009 is

Rs.4,886.35 Crs.

• GoK, at the 12th steering committee decided to agree for PAY-AS-YOU-GO

basis for funding the Terminal Benefits.

Sharing of liability between GoK & Companies

GoK liability ESCOMs and KPTCL

liability

• Liability of existing

pensioners/family pensioners as

on 31-5-02 for life time.

• Liability of pension benefit of

existing employees’ past service.

• Discharge of the liability as

assessed periodically will be

made by the GoK.

• Liability of active employees on

roll as on 31-05-02 w.e.f 1-06-

2002

• Liability of employees appointed

between 1-6-02 and 31-3-06.

• Contributions are to be made as

per the periodical actuarial

valuation done by the Trusts

Periodical release by the GOK

Year Budget

Requested

Budget

Provision

Amount

Released

by GOK

Balance

6/02 -/03 140.35 - 120.00 20.35

2003-04 216.00 - 198.00 18.00

2004-05 223.77 - 114.00 109.77

2005-06 235.91 - 60.00 175.91

2006-07 295.00 240.00 240.00 55.00

2007-08 339.64 280.00

(+)159.00 589.00 (-)249.36

2008-09 409.39 350.00 200.00 209.39

2009-10 416.20 300.00 250.00 166.20

Total 2276.26 1329.00 1771.00 505.26

Rs. In crs.

Contribution by the companies • All ESCOMs and KPTCL are to make contributions at the following rates as

per the periodical actuarial valuation got done by the Trusts through

qualified actuary.

• The rates at which contributions are pooled from time to time are Date Pension Gratuity

1-6-2002 15.05% 1.86%

1-4-2003 19.06% 2.36%

1-4-2006 21.00% 1.77%

1-4-2009 26.13% 2.44%

Fund Management

• The fund pooled into the Trusts through the contributions of

companies is managed as below;

• Discharging the pension liability of existing pensioners and family

pensioners and settlement of Terminal Benefits claims of newly retired

and death cases.

• Creating Corpus to meet future liability out of portion of Contributions

received towards it.

• Presently the Trusts have an investment of Rs.386.57 Crs

Disbursement of payment

• The Trusts started disbursing Pension/Family Pension for 19,378 pensioners

and family pensioners through 65 divisions from July 2003 and onwards.

• Presently there are 31,622 pensioners and family pensioners and payment

is made through 73 divisions

• The mode of payment is Bank, Cash and Money order.

• The average monthly pension outgo is Rs.35 Crs.

New Defined Contributory Pension Scheme-Background • Problem of growing pension liability due to the nature of scheme not

backed by any built up of asset to back this liability

• GOI constituted high level expert group on New Pension system in June

2001.report was submitted in Feb. 2002.

• Issue of growing pension liability was discussed during the conference of

State Finance Secretaries held in RBI in Jan. 2003

• The GOI introduced the New Defined Contributory Pension Scheme

replacing the existing Defined Benefit Pension Scheme in Dec.2003

• Scheme is applicable to all new entrants

New Defined Pension Scheme • The employees appointed on or after 1-4-2006 come under this scheme.

• The employees have to make contributions10% of their emoluments to this

scheme every month and the employer will make equivalent contribution

to the fund.

• Presently the Trusts are pooling these funds as a temporary measure till

such time Board appoints the fund managers for this scheme

• Under this scheme each employee has been allotted a Permanent Pension

Account Number which will be unique to him.

• The total number of employees coming under this scheme are 13,500.

Thank you