Benevolent funds – The way ahead

Introduction

Historically, not many organisations have considered instituting and maintaining Benevolent Funds. These have typically been Public Sector Enterprises and large private business houses/conglomerates with a vision of sustainability through staff welfare.

In more recent times, particularly due to the COVID-19 pandemic, more employers are showing interest in increasing staff welfare measures in order to provide additional security to their employees and their families. In particular, employers have reached out with help in different forms – extra leave, higher medical reimbursements, packages for families in case of the demise of affected employees, paid premiums towards higher health covers, more flexibility to top up benefits etc.

Rationale for instituting a benevolent fund

In order to support employees with welfare measures, many employers have expressed a desire to institute earmarked employee welfare trusts/benevolent funds, primarily for the following reasons:

• Demonstrating a long-term vision and commitment to fulfill financial needs for various reasons, particularly in times of adverse outcomes in relation to health and life;
• Having a specially earmarked Trust Fund to cover expenses for employee welfare – this may mitigate the need for sudden cashflows from the company (since payouts are uncertain);
• Providing security to employees can help retain top talent;
• Enabling employers to avail tax benefits, where possible.

Purpose and objectives

In view of the above, we expect that many employers may consider setting up Benevolent Funds to address various COVID relief and staff welfare measures for their employees. In our experience, the purpose of such funds may meet broader welfare objectives in the long-term, and can include the following:

• Grants/loans for prognostic and/or diagnostic treatment in a range of hospitals;
• Financial relief to bereaved families on the death of employees;
• Financial relief in the event of premature retirement on account of severe ailments;
• Financial cover for serious illness on hospitalisation;
• Organising vaccination camps for staff and their immediate families;
• Physical support and financial help in the event of natural calamities/force majeure events;
• One-time financial assistance to ex-employees while recognising longer terms of service;
• Child-care facilities like creches or financial assistance with day care;
• Financial assistance for higher education;
• Grants/loans towards social welfare, family planning, pre-natal care.

Mechanics

Some of the key features of such funds are summarised below:

• Eligibility – typically for those employees with longer tenure of service, but low to no vesting in the case of events like a pandemic, natural disasters, etc.
• Beneficiaries – active employees, ex-employees and dependents of employees.
• Contribution – mostly from employer/settlor and donations which may be accepted by Trustees. In some cases, these may be scientifically arrived at through valuations. Nominal employee contributions may also be envisaged.
• Payouts – as per objectives and may envisage regular payouts to meet employees’ needs.
• Investments – in conservative patterns, mirroring income-tax guidelines for retirement benefit trusts, and in safer instruments like AAA-rated bonds, Bank FDs, etc.
• Administration – more likely to be managed in-house.

Financial implications

Since the benefits associated with benevolent funds are long-term in nature, employers need to assess the appropriate funding strategy. Moreover, certain benefits are contingent on future events, e.g. death, disability, accident, etc. This may involve carrying out financial and actuarial projections to determine the likely future cost of these benefits.

In addition, in most cases, we would expect employees to co-contribute to the fund. Employers will need to determine the level of ongoing contribution that employees may need to make, taking into account the overall cost of the benefits being provided.

Willis Towers Watson recommendations

Willis Towers Watson recommends that employers consider introducing Benevolent Funds to meet employee welfare needs. This exercise could cover the following steps:

• Understand emerging employee welfare needs;
• Carry out initial and ongoing financial and actuarial assessments to scientifically estimate contributions needed to sustain welfare-related payouts;
• Secure envisaged welfare measures by structuring and instituting an irrevocable Trust;
• Build in tax efficiencies into the Trust structure; and
• Register the Trust with relevant Regulatory bodies and seek the necessary approvals.