Settlement delays by EPFO not to affect interest payout

There's good news for salaried employees who have transferred or closed their old PF accounts in the last three years, but have been wrongly denied interest on their retirement savings from April 2011 till their accounts were settled.

The PF office has been asked to ensure that employees are not penalized for its inability to settle accounts in a timely manner. The government had stopped crediting interest on employees' PF accounts from April 1, 2011, if they had been inactive for at least three years. The threat of losing interest, it was argued, may force employees to consolidate their multiple PF accounts from past jobs and transfer them to the account being operated by their present employer. The Employees' Provident Fund Organization (EPFO) had claimed that 3.04 crore PF accounts with Rs 16,000 crore were 'inoperative'. ET had reported last week that employees who sought to transfer their old PF accounts before that deadline have been denied interest from 2011-12 though their accounts were settled much later.

Worse still, employees who were paid due interest till the date of settlement are now receiving demand notices from the PF department seeking a refund of 'inadvertently' credited 'excess' interest.

The EPFO board's finance committee, which met on Friday, saw a last-minute addition to its agenda to discuss such 'exceptional' cases. "...If the settlement of a claim is delayed by more than a month after March 31, 2011, the member suffers a loss of interest on his accumulation, corresponding to the delay period. The more the delay, the more is the loss of interest," the EPFO conceded to its finance committee, citing several requests from employees for crediting interest on their claims submitted before the cut-off date.

Though EPF scheme mandates all claims and transfer requests to be settled within 30 days, it actually ends up taking much longer as the PF departments' archaic book-keeping system and business processes are unable to cope with the rise in account volumes. The EPFO now administers 8.15 crore member accounts with an underlying corpus of over Rs 5 lakh crore.

"The delay of more than 30 days in all cases is attributable on the part of EPFO... (They) have occurred due to various administrative reasons," the board's committee was told, stating that field offices have sought a clarification on whether interest must be credited on inoperative accounts where claims were received prior to March 31, 2011 but settled later. The committee has decided that in all such cases where the 'settlement delay' was not caused by the employee but by EPFO's 'administrative reasons', interest must be paid for the 'delayed period' at the prevailing EPF rate.

"We are quite anxious that EPFO fixes this, as such complaints have reached an embarrassing scale," said a member of the committee. "The modalities for ensuring all members get their dues need to be simple so that workers don't have to run from pillar to post to claim the amount they were shortchanged by," he said.

The EPFO's board of trustees chaired by labour minister Mallikarjun Kharge is expected to ratify the proposal on February 25, when it will also discuss the EPF rate for 2012-13. The PF office has proposed a rate of 8.5% as 'feasible.' The EPFO had declared a 9.5% interest on deposits in 2010-11, but slashed it by 1.25% in 2011-12 to 8.25%. Incidentally, this year's EPF income calculations don't factor in the interest income on inoperative account balances, though EPFO had claimed that it could be redistributed to active members.

Source: TOI