Avoid a business-breaking fine by contributing to employee pension funds correctly
Concerned employees were shocked by the 8pm Sunday movie on M-Net. In Tower Heist, one employee asked his boss to invest the entire company's pension money. It's a scam, and all the money is lost (there's more to the movie, but you get the point). Luckily, HR Pulse reports that pension or provident funds can't actually act on the instructions of any single person. But, you could be liable for a R10 million fine if you don't contribute to your employees' pension funds!
Here's how to account for pension and provident fund contributions correctly:
There are two types of retirement funds
generally in use: defined benefit and defined contribution funds.
Defined benefit contributions
Here, the benefits to be paid by the employee on retirement are fixed according to the rules of the pension fund
. The amount to be contributed is then determined actuarially to ensure that sufficient funds will be available when the employee eventually retires.
Defined contribution funds
For defined contribution funds
, such as provident funds
, the only amount that's fixed is the monthly contribution. The amount that will actually be paid to the employee on retirement depends on factors such as the actual amounts contributed, length of time the employee contributed, and the growth of the money in the fund over the years.
While it may seem easier, accounting for defined benefit funds is very complex!
This is because the amount contributed to the fund by the employee and employer isn't always exactly the same as the amount that will eventually be paid out.
If your accountant can't figure it out, consult a specialist
The accounting for these assets and liabilities is specialised and the accountant should normally seek the assistance of an employee benefits specialist, such as an actuary, to assist with the amounts that need to be recognised.
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HR Pulse newsdesk