|Necessary steps for setting up a provident fund
1. Campaign for prospective members
Setting up a provident fund requires, first of all, mutual cooperation between the employer and its employees. While the former facilitates knowledge enhancement and better understanding, the latter or potential fund members should study their own savings patterns in parallel with the rights and benefits, particularly tax incentives, as well as provident fund investment.
Campaigning for a provident fund can come in any flexible formats that suit employees’ characteristics. Many common approaches such as printed materials, seminars and Q&A sessions regarding the importance and mechanism of provident fund, help to elevate employees’ readiness, needs and awareness.
2. Election and appointment of fund committee
Once the employer and the employees implant a mutual understanding of provident fund, they should be ready to reach an agreement to establish one that will best serve both parties. The next preliminary step is to form a fund committee to supervise fund management. Under the Provident Fund Act B.E. 2530, the fund committee must comprise representatives elected by the employees and those appointed by the employer.
3. Selection and appointment of asset management company
The fund committee is authorized to appoint an asset management company. The committee is recommended to go through a selection process before making a final decision.
Other professional service providers will also be engaged in fund management to comply with the mandate that provident fund assets must be segregated from those of the employer and the asset management company. Such qualified service providers, i.e., “custodian” and “auditor” must obtain a license to perform their respective tasks from the Office of the Securities and Exchange Commission (SEC). The custodian has duties to take custody and ensure safekeeping of provident fund assets. The auditor has duties to audit and verify fund financial reports. In addition, the management company may delegate administrative duties to “fund administrator” whose duties include collecting contribution, registering members and disseminating semi-annual statements to members.
4. Signing contract with the asset management company
The duration of a management contract should be long enough to accommodate a provident fund’s purpose of long-term investments for retirement savings. In addition, frequent changes of management companies should be avoided as they may result in discontinuance of investment policies and mismanagement of assets/liabilities, which will lead to short-term benefits and possibly unachieved long-term goals. The current regulation requires a minimum management term of at least two years.
Before signing a management contract, the fund committee should be cautious to protect the best interest of the fund members.
5. Fund Registration
The asset management company should act as a coordinator for the execution of fund registration or fund article amendment. There are two forms of provident funds as follows:
1) Single Fund: One provident fund for one employer whose fund size is relatively large.
2) Pooled Fund: One provident fund for multiple employers whose fund size of each employer ranges from small-to medium-sized.
A pooled fund article consists of two parts, i.e., general conditions for all employers and specific conditions for individual employers.
6. Fund Management and Reports
6.1 Contribution remittance and member records
Employer may assign the personnel department or the finance department to take responsibility for member records about contribution collection. Employer shall remit contributions into the fund within three business days after the date of wage payment. A violation would result in a monthly surcharge of 5% of the delayed amounts.
Contributions remitted to the funds will be managed by asset management companies under the supervision of the fund committee to ensure that the fund managers will invest in accordance with investment polocies. The SEC has also extended the concept of “employee’s choice” to provide members with an opportunity to choose an investment policy that best suits their own risk tolerance and return expectations. Nevertheless, the success of this concept depends on the members’ awareness and understanding of capital market investment.
6.3 NAV Calculation
The net asset value (NAV) of funds is calculated upon the mark-to-market (MTM) practice. Market prices of different assets in the portfolio such as stocks and bonds determine the fair value of fund assets. The fund committee and the asset management company agree on the frequency of trade dates that must take place at least once a week. The NAV – initially calculated by the asset management company – is updated upon a specified trade date and verified by an NAV verifier to ensure accuracy.
The management company provides the fund committee with monthly and annual reports on the investment portfolio and returns. Members receive semi-annual statements of their contributions and benefits. Members’ queries concerning the fund management can be made through the fund committee.
last updated date 13/05/2553