The combined employee benefits liabilities if 94 of the BSE 100 companies registered an increase of 17% to approximately Rs 4,227 billion as compared to approximately Rs 3,600 billion in the previous year (which covered 99 companies). According to the Employee Benefits Accounting and Risk study by Towers Watson, the unfunded employee benefit liabilities have decreased from 32% to 12% in a span of 6 years.
Further, the combined overall funding of the total Defined Benefits (DB) liabilities increased from 86% in 2011 to 88% in 2013. While there has been an increase in the combined overall funding, the funding level for Gratuity plans and DB Pension liabilities also witnessed increase from 6% and 8% over the same period.
The study said that this revealed that a significant portion of the corporate liability on account of long term employee benefits is now better funded than a year ago. Even with an increase in liabilities and potential economic pressures, companies are contributing more to these plans. The 2013 contributions were almost twice that of 'service cost' (which represents the cost of one year's additional benefit accrued) on an average basis for the BSE companies.
Kulin Patel, Actuary and Director - Client Account Management, Towers Watson India, said, "Adapting to the ever changing economic environment, evolving accounting standards coupled with increased auditor scrutiny, today companies have greater clarity and understanding about valuation of employee benefits. Consequently, unfunded employee benefit liabilities have witnessed a marked decrease over the last six years with corporate liability for long term employee benefits now being better funded, a trend which is likely to continuing with more companies disclosing liabilities for benefit plans."
Public Sector banks, by far continue to have the largest risk of the extent of liabilities against their finances with the risk represented by DB plans continuing to be significantly high. The median employee benefit expense on account of the above benefit liabilities as a percentage to operating profit is almost 23% amongst PSU banks as compared to private banks where it is 0.6% and 1.6% for the BSE100 overall.
Drawing attention towards 'Defined Benefit' (DB), the study brings to the fore how DB pension continues to be the biggest contributor to total liabilities at 47% (52% in 2012), followed by 'Other' Defined Benefit Plans which contributes 25% (17% in 2012). I
The survey said that if PSU Banks are excluded 'Other' Defined Plans and Gratuity emerge as the biggest contributors at 42% and 33% respectively. Further, the number of companies providing Leave Benefits have increased to 88% in 2013 as compared to 78% in 2012, mainly due to increase in disclosures.
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The liability in all sectors has increased, with electric taking the lead in percentage increase. The banking sector liabilities have increased by 33% and continues to have the largest share of benefit plans. The Oil and Gas (Energy) sector takes the second position in terms of liabilities per company, however, it's far behind if compared to banking sector
This edition of the 'Employee Benefits Accounting & Risk study' is based on information from 94 of the BSE 100 companies analysing data as shown in the notes to their audited company financial statements as at 31 March 2013 (as required by Accounting Standard 15). Whilst the data is collected by October of each year, the study is published towards the financial year end.