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Important Factors For Setting Up a Provident Fund

 

 

           Exploring Important Information

           Selecting Types of Fund

           Considering Expenses

           Management Mechanism

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Exploring Important Information

          
1. Employer

               To sustain the employee’s welfare based on the real condition , you should understand and consider employer’s system whether it can support the 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 that affect the fund.
               2.1 How many employees? Number of permanent and temporary employees.
               2.2 What is the employee structure? Determine the proportion of permanent employee and temporary employee, employee turnover, employee age structure, etc. in order to explore the turnover ration that involves operational tasks.
               2.3 What is the level of saving ability of employees? Determined by looking at employee’s age or monthly income and then estimating the amount that employee can contribute.
               2.4 How much do employees understand about 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, what 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 characteristic of provident fund is that the fund manager must be a third party and not 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 because provident fund is categorized as a private fund. Not only you have to know which asset management companies are operating in Thailand, but you also have to know the characteristic of asset management company by doing research on each asset management company before making a decision.

2

Selecting Types of Fund

          Generally, there are two types of provident fund. 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 there are no size limitation and complicated requirements, then pooled fund might be the most suitable choice. With 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.

3

Considering Expenses

          There are 4 main expenses incurred in provident fund.
               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 company. 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 helps you share all the costs. However, with a large fund such as a pooled fund, financial burden will be shared among many employers.

4

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 derived from employer’s appointment and the fund committee representing employee derived from employees’ vote as the fund member. The fund committee in single fund and pooled fund will play a different role.

          In single fund, the fund committee is responsible for selecting and making contract with 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 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 policies and rules will be with asset management company.

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

     


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