Private EPF trusts can’t declare interest lower than EPFO

MUMBAI: Nearly 1,500 private employee provident fund trusts set up by companies for administration of their employee provident funds (EPFs) will have to ensure that the rate of interest declared by them is at par or higher than that declared by the Employee Provident Fund Office (EPFO).

Further, there will be periodic evaluation and monthly ranking of companies which have set up such trusts to ensure better compliance. Employees will also have to be promptly intimated within two days when their EPF account is credited.

The ministry of labour noticed that a few private EPF trusts were not able to declare the rate of interest at par with EPFO. Hence, a recent circular emphasises that any deficit in interest declared by the board of trustees is to be made good by the employer to bring it up to the statutory limit.

"About 1,500 companies have been granted exemption (ie: permission) to maintain their own EPF trusts. While declaration of the minimum interest prescribed by the EPFO and meeting of any deficit by the employer company, are conditions prescribed for running a private EPF trust, some were not following it. The recent circular on interest rate and prompt communication to employees aims to ensure parity for employees covered by such private trusts," said an official.



Sonu Iyer, leader and partner, People Advisory Services at EY India, illustrates: "For the financial year 2016-17, the interest rate announced by the EPFO was 8.65%. Irrespective of the earnings actually made by the private trusts, they are required to provide this minimum interest rate to their employees. These trusts have also been advised, via the circular, to constitute investment committees to ensure optimal financial management of the trust's funds."

"Stringent action, such as cancellation of the permission given to the private EPF trust, will be taken for repeated defaults, especially for delays in remittance of money collected from employees or for reduced interest rates," say government sources.

Companies with private EPF trusts will be evaluated periodically on six parameters (100 points for each), such as: full and timely monthly remittances of EPF accumulations to the private trust; transfer of funds -- for example on exit of employees; efficacy of making investments, the rate of return and settlement of claims and audit of the private trust's accounts.

All companies having 20 or more employees have to provide a social security net via provident fund. If a company has not opted for its own private provident fund trust, the employees are covered by the fund administered by the EPFO, which currently oversees nearly 15 crore employee accounts.

EPFO communicates remittances made to an employee's account through UMANG mobile app e-passbook.

The EPFO website has already put up the ranking of 1,552 companies for July, with 50 firms getting a perfect score of 600. Notable names include Steel Authority of India, West Bengal Power Development Corporation, Gujarat State Fertilizers, Godrej Consumer Products, Nestle India, and Mother Diary.