EPFO fails to fix interest rate; FinMin to decide

The Employees` Provident Fund Organisation failed to take a decision today on the interest rate to be paid to its subscribers for 2011-12.

New Delhi: Amid differences between
representatives of employees and employers, the Employees` Provident Fund Organisation (EPFO) failed to
take a decision today on the interest rate to be paid to its
4.7 crore subscribers for 2011-12 and asked the Finance
Ministry to take the final call.

The EPFO will
forward different suggestions with respect to payment of
interest on provident fund deposits for the current fiscal to
the Finance Ministry for a final decision, Labour Minister
Mallikarjun Kharge said after a meeting of the Central Board
of Trustees (CBT), the highest policymaking body of the EPFO.

While the EPFO has suggested payment of interest at the
rate of 8.25 per cent for the fiscal, the trade union members
insisted that it should be 9.5 per cent. The representatives
of employers wanted the interest rate to be fixed at 8.5 per
cent. The EPFO paid 9.5 per cent interest to its members
during 2010-11.

According to sources, this was the first time that the
CBT has failed to take a call on the interest rate and has
asked the Finance Ministry to decide the issue.

Making a case for payment of 9.5 per cent interest, the
trade union members, according to sources, argued that the
EPFO cannot pay less than 8.6 per cent interest, the rate
offered by the government under the Public Provident Fund
(PPF) scheme. The Financial Advisory Committee (FIC) of the
EPFO, however, had suggested payment of 8.25 per cent interest
in 2011-12.

According to estimates worked out by the EPFO, the
payment of 8.25 per cent interest during 2011-12 would result
in a deficit of a mere Rs 24 lakh vis-a-vis its earnings.
It had further pointed out that an 8.5 per cent rate of
return for subscribers would translate into a deficit of Rs
526.44 crore.

The trade unionists were of the view that if the
estimation error is factored in properly, the EPFO could spare
around Rs 400 crore, which would be sufficient to pay an
additional 0.25 per cent over the projected 8.25 per cent rate
of return this fiscal.
The unionists also raised the possibility of passing on
the interest income on inoperative accounts, on which the EPFO
stopped payment of interest from April 1, 2011, to active

Inoperative accounts are those accounts that have not
received any contribution for 36 months or more. About Rs
15,000 crore lying in these accounts has been invested and is
yielding returns, it was pointed out.
The EPFO, however, was not clear whether the income from
these inoperative accounts could be distributed among live
accounts, or should be kept as reserves.


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