It has been reported (The Hindu - 03.07.2017) that a sum of Rs. 2026 crores has been written back from Employees’ Pension Fund and Employees’ Gratuity Fund to Bank’s Profit & Loss A/c reportedly on actuarial valuation but allegedly to shore up the bottom line
Relevant extracts of the annual report of the Punjab National Bank for the year 2016-17 (available at the website of the bank) are as under:-
# Significant Accounting Policies (Page -138)
● PENSION:
Pension liability is a defined benefit obligation and is provided for on the basis of an actuarial valuation. The scheme is funded by the bank and is managed by a separate trust.
Independent Auditors report,
Emphasis of Matter (Page -184)
# 7. Without qualifying our opinion, we draw attention to Note no. 15 C regarding valuation of Plan Assets of long-term benefits , resulting in excess of fair value of plan assets over present value of obligation amounting to Rs.2026.60 crores credited to “Payments to and Provisions for Employees- Employee Cost ” with consequential impact on results for the year.
Independent Auditors’ Report on Consolidated Financial Statements of Punjab National Bank Group,
Emphasis of Matter (Page -240)
# 10 Without qualifying our opinion, we draw attention to Note no. 4.5C regarding valuation of Plan Assets of long-term benefits , resulting in excess of fair value of plan assets over present value of obligation amounting to Rs.2026.60 crores credited to “Payments to and Provisions for Employees - Employee Cost ” with consequential impact on results for the year."
The PNB Employees Pension Regulations, 1995 speaking about pension fund, to ensure prompt payment of pension states in Regulation 11 as under:
# Regulation No. - 11. Actuarial investigation of the Fund. The Bank shall cause an investigation to be made by an Actuary into the financial condition of the Fund every financial year on the 31st day of March, and make such additional annual contributions to the Fund as may be required to secure payment of the benefits under these regulations:
Provided that the Bank shall cause an investigation to be made by an actuary into the financial condition of the fund. As on the 31st day of March immediately following the financial year in which the Fund is constituted.
From the above it is clear that the actuarial investigation is made only to identify shortfall if any so that the bank shall make good the same by providing adequate additional contributions. There is no provision to reverse the money already credited to the Pension Fund.
Further, Regulation 13 provides for the payments out of funds viz.
# Regulation No. - 13. Payment out of the fund: The payment of benefits by the trust shall be administered for grant of pensionary benefits to the employees of the Bank or the family pension to the families of the deceased employees of the Bank..
None of the regulations in the Pension Regulations, can be construed to authorize the Management of the Bank or the Employees’ Pension Fund Trust to Debit the fund on account of any other purpose including a write back of the earlier contributions of the bank in the fund. In the absence of any express provision authorizing such write back, the action of the management / trust tantamount to misappropriation of the funds of Employees Pension Fund.
The auditors in their audit report on page 184 & 240 under the head “Emphasis of Matter” smartly failed to mention that “Plan Assets” are actually assets and the property of Employees’ Pension Fund Trust, which is a separate & independent entity , of which Punjab National Bank is only a contributor of the trust in terms of Punjab National Bank (Employees’) Pension Regulations,1995.
The AS15 (Accounting Standards 15) devised by ICAI, is a financial tool to ascertain the adequateness of the provisions of plan assets for employees benefits. It can’t override the provisions of Law and / or Regulations (subordinate legislation ) promulgated by the Govt. of India, with the approval of the parliament, through Gazette notifications.
Further, it is beyond one's comprehension that actuarial valuation can find surplus in the present environment of falling interest rates. It is suggested that retirees organisations should ask the bank to make public the actuarial valuation report to know whether the same is based on standard accounting principles.
Retirees Organisations can/should file a formal complaint with PFRDA ( Pension Fund Regulatory and Development Authority of India) with the prayer.
a. To reconstitute the PNB Pension Fund Trust with representatives of PFRDA, GOI, Bank & retirees organisation
b. Order for return of the funds illegally debited from pension fund.
c. Impose suitable penalty on PNB for misappropriation of pension funds.
It is further suggested that retirees organizations may explore whether a complaint can be filed for diversion of funds under Prevention of Money Laundering Act, because as per regulations pension funds can not be debited/utilized for any purpose, other than payment of pension / family pension.
With the recent fraud coming into light in the Punjab National Bank, the above matter has assumed a greater significance.
While continuity of banks cannot be ensured, continuity of Pension Funds has to be ensured , which is of utmost importance for the welfare of retired bank employees.
The principal objective of AIBRF ( only Regd. Trade Union of retired employees) is the welfare of retired employees, which implies, in turn, to ensure continuity of payment of pensions besides other welfare measures for the retirees. Improvements in the pension and other retirement benefits can at best be the secondary objectives.
As per the present regulations the pension fund trusts are managed by the nominees of the bank, who are obviously bound to follow the instructions of the bank. In the PF Trust of serving employees, representatives of serving employees & officers are in the board of trustees of PF Trust to oversee that prudent investment policies are followed for trust funds. But in the case of Pension Fund Trust only nominees of bank management are in the “Board of Trustees”, resulting thereby there is no transparency in the working of the Pension Fund Trust. Unconfirmed reports suggest that some of the investments of the Pension Fund Trust have gone NPA, which will definitely impact the ability of the pension fund trust in regular payment & continuity of pension payments to retirees.
I am of the firm view that AIBRF, on priority basis, should take up with IBA &/or individual bank managements for pensioner’s representation ( nominees of AIBRF) in the Pension Fund Trusts to prevent unauthorized transactions as above and to ensure that transparent & prudent policies are followed in investments of the trust funds.
AIBRF should also create a “Risk Assessment Cell” to monitor / analyse;
(a) Actuarial valuation reports of Pension Funds of different banks.
(b) Investment policies of Pension Funds of different banks & guiding suitably the representatives of pensioners in the Pension Fund Trusts.
Significance of the matter cannot be overemphasized for the serving employees, who joined the bank up-to 2010, as after their retirement in probably 2045 ( by 2045, almost all the employees who joined the bank by 2010 will retire), the employer (PNB) contribution towards Pension Fund of serving employees will dry up & continuation of their pension payments after their retirements will solely depend upon the correct actuarial valuations of the pension fund. As far as the current pensioners are concerned, most of them will not be there to receive the pensions & during their lifetime the income of the pension funds, which consists of Interest on pension fund corpus and employer contribution for the serving employees, will be more than sufficient to meet the pension payments. The trouble will start after 2045, when the pension funds will have to depend solely upon the interest income from the corpus of Pension Funds, to meet the pension payments.
I call upon the serving employees to ask their associations to take up this matter on priority basis, as the same has far reaching effects on their life after their retirement.
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