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Private sector PF trusts increasingly surrendering exempted establishment status under EPFO

Private sector PF trusts increasingly surrendering exempted establishment status under EPFOAgencies
Synopsis
Private sector provident fund trusts are increasingly surrendering their exempted status to EPFO, with 17 establishments applying in FY24. This shift is driven by EPFO's higher returns, increased management costs for trusts, and the growing size of establishments making trust management more complex. Over the past two years, 27 establishments surrendered their exemption, adding 30,000 employees and ?1,688.
ET Bureau
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Private sector provident fund trusts are increasingly surrendering their exempted establishment status under the Employees’ Provident Fund Organisation (EPFO), according to government data.
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In FY24, 17 establishments applied for surrender compared with 14 in the previous year, and just three in FY22.

This, officials told ET, seems to have been prompted by the EPFO generating higher returns which the exempted trusts are unable to match, and the increase in cost of managing trusts amid a growth in the number of employees.

Moreover, establishments have grown in size since they registered, making it difficult for them to run their trusts, as it requires large manpower and multiple compliances, the officials said.

PrivateTrustsQuittingPFManagement

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As per government data, India had 1,002 exempted establishments as of March 31, 2023, managing a corpus of Rs 3,52,000 crore of 3.12 million members.

Over the last two years, 27 establishments surrendered their exemption, adding about 30,000 employees and Rs 1,688.82 crore to the fund under EPFO.

EPFO currently has an active subscriber base of 77 million and manages a corpus of Rs 24.75 lakh crore.

“EPFO has been professionally managing funds and generating steady returns for members with enhanced focus on ease of living for its subscribers, resulting in an increase in the trend of surrendering exemptions,” a senior government official told ET.

Madhu Damodaran, member, central board of trustees of EPFO, said the fact that investment rules mandate even the exempted trusts to invest 80% of provident fund (PF) contribution in government securities, establishments are seeing a dip in investment earning capacity.

“This is impacting their capacity to match the high rate of interest offered by EPFO,” he said, adding that increasingly more establishments are preferring to focus on their core business instead of hiring more manpower to manage the PF corpus of its employees.

According to Tarun Garg, director, Deloitte India, the monitoring of the performance of the exempted establishment on a monthly basis by EPFO makes it more challenging for an underperforming trust to continue.

“Besides, with a reduction in the administrative charges to be paid to EPFO in comparison to the overall PF Trusts’ inspection charges, operational cost, cost of yearly audit and fiduciary responsibility for managing the trust, the companies prefer transferring these responsibilities to the EPFO,” said Garg.
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All parties gain in the process, he added.

“While EPFO will see an increase in the overall corpus and scale of investment operations, employers get the flexibility to focus on their core business and employees will see smooth portability and ease of access upon their job switch,” he said.

Establishments that wish to manage the PF corpus of their employees need to seek exemption under Section 17 of the EPF Act, enabling them to manage their own PF Trust without making statutory contributions.

However, such exempted establishments are statutorily mandated to provide benefits that are at least on par with those provided by EPFO to subscribers and comply with the notified conditions of exemption as outlined in the Act.
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