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Important factors for setting up a provident fund
  •  Exploring Important Information
              1. Employer

                   To sustain the employees' welfare based on the real condition, you should understand and consider employer’s system whether it can support setting up a provident fund.
                   1.1 How large is your organization? Determine whether you are a large, medium or small company by looking at size of assets or revenue figures comparing to those of other companies in the same industry. 
                   1.2 What is the company’s growth rate? Determine the company’s growth rate by looking at an increase or decrease of sale, income or profit and make a forecast.
                   1.3 Does employer have the ability to contribute to the fund? This refers to employer’s contribution rate. 
                   1.4 Who will be responsible for the fund and how? Employer should assign a person to be responsible for sending contribution amount to the fund and making a list of members, including other operational tasks. The person can be either from human resource department or finance department.

              2. Employee 
                   You should determine the main characteristic of members in the fund and see how the characteristic affects the fund. 
                   2.1 How many employees? Number of permanent and temporary employees. 
                   2.2 What is the structure of employees? Determine the proportion of permanent employees and temporary employees, employee turnover, employee age structure, etc. in order to explore the turnover ratio that involves operational tasks. 
                   2.3 What is the level of saving ability of employees? Determined by looking at employees’ age and monthly income and then estimating the amount that employees can contribute. 
                   2.4 How much do employees understand about the provident fund? Determine the level of understanding of employees in the provident fund and the importance of retirement saving in order to make an educational plan for them properly. 

              3. Estimating the fund size

                   As for the fund size, you may estimate how large it will be. What will the amount of cash inflow and outflow in each month and the trend of growth be.
                   3.1 How much is the start up fund? For example, on the first day of establishing a provident fund, how much would be the sum of employer’s and employee’s contribution?
                   3.2 What is the amount of employee’s and employer’s contribution in each month? This amount can be estimated under the condition that employer’s contribution must not be less than employee’s contribution.
                   3.3 What will be the growth rate of the fund? In the future, if there is an increase in employee’s and employer’s contribution or more employees are hired, what will be the fund size?

               4. Asset Management Company

                   One of the most important characteristics of the provident fund is that the fund manager must be the third party and must not be the employer himself. Therefore, you need to do a research on the people who will manage this fund. These professionals must be licensed by the office of SEC in order that they can operate private fund management business including provident funds. Not only you have to know which asset management companies are operating in Thailand, but you also have to know the characteristics of asset management companies by doing  a research on each asset management company before making a decision.
  • Selecting Types of Fund
             Generally, there are two types of provident funds. One is established by the sole employer (single fund) and the other is established by many employers (pooled fund). To be a single fund or a pooled fund, many factors need to be considered. You can refer to the result of your preliminary research. If the result shows that the fund size is quite small and there are no complicated requirements, then pooled fund might be the most suitable choice. With the pooled fund, you can realize an economy of scale when all the fixed costs are shared among many employers. On the other hand, single fund is tailor-made to meet your specification but you have to bare all the costs.
  • Considering Expenses
              There are 4 main expenses incurred in provident funds.
              1. Management Fee
              2. Custodian Fee based on net asset value of the fund
              3. Fund Administrator Fee
              4. Auditor Fee

              The first two expenses are mostly based on net asset value of the fund. Thus, the expenses incurred from single fund and expenses incurred from pooled fund is slightly different depending on the negotiation with asset management companies. As for membership registrar fee, it will be calculated based on the number of employees or some asset management companies may include it into the management fee. Moreover, most auditor fees will require a minimum fee which acts as fixed cost. With a small fund, nobody share the costs. However, with a large fund such as a pooled fund, the financial burden will be shared among many employers.
  • Management Mechanism
             A vital mechanism of a provident fund is a fund committee. The fund committee is composed of 2 parties which are the fund committee representing employer (appointed by employer) and the fund committee representing fund members (voted by fund members). The fund committee in single funds and pooled funds will play a different role.

             In single fund, the fund committee is responsible for selecting and making contract with the asset management company, custodian, and auditor, proposing to modify the governing rule and coordinating with other people. As for pooled fund, the fund committee is merely responsible for determining or making investment policies, proposing to modify the governing rule of its own employer section such as employee’s and employer’s contribution rate and vesting rate. The main responsibilities in managing the fund, making investment policies will be with asset management companies.

             However, the fund committee may authorize the asset management company to select custodian and auditor for the fund. The fund committee can also assign the asset management company to be a representative in submitting the document of fund establishment or modifying the governing rule with the office of SEC.

last updated date 13/05/2553

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