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Basic gtl & gratuity training force 1


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basic understanding of group term life and gratuity

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Basic gtl & gratuity training force 1

  1. 1. Employee Benefit Solutions Date : 27 th February 2009 Presented by : Sanjeev Chellappa
  2. 2. Content <ul><li>Employee Benefits Solutions in the Market </li></ul><ul><li>Group Term Insurance </li></ul><ul><li>Group Gratuity </li></ul>
  3. 3. Employee Benefit Scenario In India
  4. 5. Group Life Insurance <ul><li>Group Life insurance can be a great incentive in recruiting and retaining talent </li></ul><ul><li>Increases motivation and employee loyalty </li></ul><ul><li>Provides financial freedom to your employees </li></ul>Group Life Insurance is single policy which covers the lives of the employees / members of an organization
  5. 6. Benefits for Employer <ul><li>Provides financial security to the employees at a minimal cost </li></ul><ul><li>Serves as a strong retention tool and as a loyalty building measure </li></ul><ul><li>Hassle free administration and enrollment – Free Cover Limit </li></ul><ul><li>Premium payable is an approved business expense under the current Income Tax laws.# </li></ul><ul><li>Allows for uniform business expense to cover fluctuating mortality risk </li></ul>
  6. 7. Benefits for Employee <ul><li>Provides financial security to the family and dependents of the employee </li></ul><ul><li>Hassle free enrollment </li></ul><ul><li>The Face Amount is not taxable in the hands of the beneficiary </li></ul><ul><li>Cheaper than individual coverage </li></ul><ul><li>Option available to convert from Group to Individual policy while leaving the company </li></ul>
  7. 8. Some GTL Concepts <ul><li>Actively at Work clause </li></ul><ul><li>Free cover limit </li></ul><ul><li>Medical Underwriting </li></ul>
  8. 9. Service Delivery <ul><li>Claim </li></ul><ul><li>Turn-around Time </li></ul><ul><li>Documentation advice </li></ul><ul><li>Addition & Deletion of Members </li></ul><ul><li>Customer Service </li></ul>
  9. 10. Details Required to Generate Quote <ul><li>Employee Name </li></ul><ul><li>Number </li></ul><ul><li>Gender </li></ul><ul><li>Date of birth </li></ul><ul><li>Designation </li></ul><ul><li>Salary </li></ul><ul><li>Past death experience for 3 years </li></ul>
  10. 11. <ul><li>END OF PART 1 </li></ul><ul><li>QUESTIONS </li></ul>
  11. 13. What is Gratuity ? <ul><li>Gratuity is </li></ul><ul><ul><li>A gratuitous payment </li></ul></ul><ul><ul><li>A parting gift </li></ul></ul><ul><li>Supreme Court on Gratuity: </li></ul><ul><li>“ 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. </li></ul>
  12. 14. What is Gratuity <ul><li>Gratuity to be paid on retirement, termination, superannuation, death and disability of an employee </li></ul><ul><li>Liability accrues every year of service put in by the employee </li></ul><ul><li>Gratuity liability will be proportional to changes in salary </li></ul><ul><li>Formula for calculation = 15/26*last drawn salary*no. of years served </li></ul>
  13. 15. Why pay Gratuity <ul><li>Statutory obligation for employers </li></ul><ul><li>Retirement benefit for the employees </li></ul><ul><li>Tax free in the hands of employee till Rs.350000 </li></ul><ul><li>Good HR initiative (Gratuity can be bettered by the employer) </li></ul><ul><li>Employee motivation to stay in the Company for a considerable time </li></ul>
  14. 16. When should an employer pay gratuity <ul><li>Obligatory for an employer having 10 or more employees </li></ul><ul><li>Gratuity payable to an employee : </li></ul><ul><ul><li>On termination, superannuation, retirement, death and disability </li></ul></ul><ul><ul><li>After the employee has rendered continuous service for not less than 5 years * </li></ul></ul><ul><ul><li>* (Service of 5 years not necessary in case of death and disability) </li></ul></ul>
  15. 18. Options to meet your Gratuity Liability Create an Internal Reserve Fund Gratuity Liability Insurance Managed Gratuity Plan Company Pay as you go Self managed
  16. 19. Need to fund for Gratuity <ul><li>Bulk recruitments lead to bulk retirements </li></ul><ul><li>There may by large payments in certain years </li></ul><ul><ul><ul><li>Death / Accidents / Industry slump </li></ul></ul></ul><ul><li>Avoid overstated profits in books </li></ul><ul><li>In accord with the latest accounting standards </li></ul>
  17. 20. <ul><li>MetLife Gratuity Solution </li></ul>
  18. 21. Product <ul><li>Unit-linked non-participating scheme </li></ul><ul><li>designed to help the organization to scientifically estimate gratuity liability. </li></ul><ul><li>Flexible plan features. </li></ul><ul><li>Customization of investment option commensurate with the required risk/return profile. </li></ul>By Sanjeev Chellappa
  19. 22. Met Gratuity Features <ul><li>Scheme will be administered through the creation of a Trust </li></ul><ul><li>Investment in two Investment Fund options - Debt and Balanced </li></ul><ul><li>Switching between investment fund options allowed </li></ul><ul><li>Scientific actuarial estimation of past service gratuity liability </li></ul><ul><li>Future service gratuity can be covered through a group term insurance plan </li></ul>By Sanjeev Chellappa
  20. 23. Service <ul><li>Mutually agreed Service Level Agreements </li></ul><ul><ul><ul><li>Agreed Turn Around Times for various deliverables </li></ul></ul></ul><ul><li>Focused service: </li></ul><ul><ul><ul><li>Separate Relationship Manager for handling the accounts </li></ul></ul></ul><ul><ul><ul><li>Service Delivery Team for Post Sale servicing </li></ul></ul></ul><ul><li>Assistance in formation of Trust </li></ul><ul><li>Facilitation for transfer of funds from your existing Insurer etc </li></ul><ul><li>Panel for AS-15 certification </li></ul>By Sanjeev Chellappa
  21. 24. Investment Pattern <ul><li>Two Fund Options </li></ul><ul><ul><li>Debt </li></ul></ul><ul><ul><ul><li>To earn regular income by investing in high quality Fixed Income securities </li></ul></ul></ul><ul><ul><li>Balanced </li></ul></ul><ul><ul><ul><li>To generate Capital appreciation and current income, through a judicious mix of investments in equities and Fixed securities. </li></ul></ul></ul><ul><li>Conservative – Long Term approach </li></ul><ul><li>No outsourcing of investments </li></ul><ul><li>Investment Committee – Seven Member team </li></ul>By Sanjeev Chellappa
  22. 25. Process <ul><li>Member information to be given with benefit structure </li></ul><ul><li>Actuarial estimation of funding rate will be provided by MetLife </li></ul><ul><li>Board Resolution for the formation of a trust and complete other documentation </li></ul><ul><li>Application Form to be Completed </li></ul><ul><li>Collection of premium </li></ul>By Sanjeev Chellappa
  23. 26. Details Required to Generate Quote <ul><li>Employee Name </li></ul><ul><li>Number </li></ul><ul><li>Gender </li></ul><ul><li>Date of birth </li></ul><ul><li>Designation </li></ul><ul><li>Salary </li></ul><ul><li>Past death experience for 3 years </li></ul><ul><li>Definition of gratuity with regards to the specific trust </li></ul>
  24. 27. Thank You Questions
  25. 29. PAY AS YOU GO METHOD <ul><li>Characteristics: </li></ul><ul><ul><ul><li>Pay gratuity liability as and when it arises </li></ul></ul></ul><ul><ul><ul><li>There is no creation of any reserve or provision in the books of accounts </li></ul></ul></ul><ul><li>Disadvantages: </li></ul><ul><ul><ul><li>Not a systematic way of paying off gratuity liability </li></ul></ul></ul><ul><ul><ul><li>Overstatement of profits leading to Higher taxes and Dividends </li></ul></ul></ul><ul><ul><ul><li>Unexpected deaths/disabilities will impact the P&L to a large extent </li></ul></ul></ul><ul><ul><ul><li>Not compliant with AS 15 </li></ul></ul></ul>By Sanjeev Chellappa BACK
  26. 30. Internal Reserve <ul><li>Characteristics: </li></ul><ul><ul><ul><li>Provision is made in books of accounts </li></ul></ul></ul><ul><ul><ul><li>There is a reflection of accrued liability </li></ul></ul></ul><ul><ul><ul><li>Profits are not overstated </li></ul></ul></ul><ul><li>Disadvantages: </li></ul><ul><ul><ul><li>The provision is notional and not actual </li></ul></ul></ul><ul><ul><ul><li>Money can get invested in the business </li></ul></ul></ul><ul><ul><ul><li>No tax benefit </li></ul></ul></ul><ul><ul><ul><li>Creditors have claim to the reserve </li></ul></ul></ul><ul><ul><ul><li>Unexpected deaths/disabilities will impact the P&L to a large extent </li></ul></ul></ul>By Sanjeev Chellappa BACK
  27. 31. Self Managed Gratuity Fund <ul><li>Characteristics: </li></ul><ul><ul><ul><li>Set up an irrevocable trust </li></ul></ul></ul><ul><ul><ul><li>Trustees will invest the funds and make gratuity payments </li></ul></ul></ul><ul><ul><ul><li>Tax benefits for the Company ( Claim as business expenditure) </li></ul></ul></ul><ul><ul><ul><li>Trustees will have control over the investments </li></ul></ul></ul><ul><ul><ul><ul><ul><li>Investments can be made in accord with Company’s risk appetite. </li></ul></ul></ul></ul></ul>By Sanjeev Chellappa
  28. 32. Self Managed Gratuity Fund <ul><li>Disadvantages: </li></ul><ul><ul><li>Investment options are limited </li></ul></ul><ul><ul><li>Trustees do have a business role to play </li></ul></ul><ul><ul><ul><ul><li>Trustees are responsible for administration and investment of funds in addition to their busy business roles </li></ul></ul></ul></ul><ul><ul><li>Liquid funds to be maintained to pay immediate gratuity requirement </li></ul></ul><ul><ul><li>Actuarial valuation complexities </li></ul></ul><ul><ul><li>Securities will be bought in small amounts which leads to increased costs </li></ul></ul>By Sanjeev Chellappa BACK
  29. 33. Life Insurance Company - MetLife <ul><li>Characteristics: </li></ul><ul><ul><ul><li>Wider Investment Options </li></ul></ul></ul><ul><ul><ul><li>Optimum returns for the investments </li></ul></ul></ul><ul><ul><ul><li>Better returns will lead to lesser costs of funding for gratuity liability </li></ul></ul></ul><ul><ul><ul><li>Tax benefits for the Company ( Claim as business expenditure) </li></ul></ul></ul><ul><ul><ul><li>Pooling of various gratuity funds will reduce the costs </li></ul></ul></ul><ul><ul><ul><li>Saves time for Company Officials </li></ul></ul></ul><ul><ul><ul><li>Control of funds remain with the trust </li></ul></ul></ul><ul><ul><ul><li>Liquidity management is very efficient </li></ul></ul></ul>By Sanjeev Chellappa
  30. 34. Life Insurance Company - MetLife <ul><li>Disadvantages: </li></ul><ul><ul><ul><li>Prudence of service provider will determine the returns </li></ul></ul></ul><ul><li>CHOOSE THE RIGHT SERVICE PROVIDER </li></ul>By Sanjeev Chellappa BACK