32% of staff benefit liabilities of top cos 'unfunded'

NEW DELHI: These are tough times for employees not just because there is uncertainty over jobs but even their long-term benefits seems to be unsure as a survey has shown that 32 per cent of superannuation benefits of top 100 listed companies are "unfunded".

According to advisory firm Watson Wyatt's annual study of employee benefits disclosures in India, "32 per cent of total superannuation Defined Benefit (DB) liabilities of BSE 100 companies are unfunded."

On the study Watson Wyatt Employee Benefits Practice Head Kulin Patel said: "In the current economic environment many employees face a level of uncertainty in their short-term compensation levels and with no formal social security system in place, there is a greater need for them to be reassured that their long-term financial needs will be met."

The employee benefits team at Watson Wyatt in India surveyed and analysed 93 companies (89 companies from the BSE 100 in addition to 4 banks).

"The report covers companies with a total DB liability of Rs 76,350 crore and a total asset value of Rs 51,690 crore. This gives a total funded status of 68 per cent," it said.

The report added "One third of the total liability is in respect of the State Bank of India. If this is removed from the sample the funded status would be 60 per cent."

India has a number of employee benefit schemes like gratuity and provident fund. Many companies in India operate other employee benefit schemes such as (Superannuation Defined Benefit (DB) or Defined Contribution (DC)), Leave benefit and Post-retirement medical schemes.

When the employee benefit liabilities of the companies are unfunded, they resort to their operating cash flows for meeting the ongoing benefit obligations. Given the current economic environment, if the company is looking to restructure its workforce, it could face a significant strain on its cash flow to meet employee benefit payments, the report said.

"This impact may be reduced if the younger or entry level workforce is laid off as they have not built up significant benefits. ...If a company has to retrench its older or higher paid workforce who would generally be entitled to larger benefits it may find it difficult to meet the obligations due if the benefit plans are unfunded," the report said.

A sectoral analysis show on an average, firms in the pharmaceutical, auto and the software sector operate smaller benefit plans, while, those in the telecom sector and the oil and gas sector operate much larger benefit plans. Banks top the list with an average benefit liability of Rs 3,344.5 crore per bank.

Our findings suggest that benefits risk in India is not sector specific since the indicators show no particular consistency within companies of the same sector with the exception of the banking industry.