New Employee Benefit Accounting in Thailand by brz27029

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									    Pension Plan Future Payouts,
Implications for A Company’s Net Financial Position




                   Dr. Panya Sumritpradit
                Arnoma Hotel, Bangkok, Thailand
                     28th November, 2006

                                              1
Outline


    Employee Benefit Information & Related Law Summary
    Current Practices of Employee Benefit Accounting in
    Some ASEAN Countries and Thailand
    Difficulty in Implementing Employee Benefit Accounting
    and Potential Solutions
    Impact of Employee Benefit Accounting on Financial
    Position
    Questions, Comments and Suggestions


                                      2
Employee Benefit Information
 History of Employee Benefits
 1875 American Express
      Invested in Bank Deposit
 1974 Employee Retirement Income Security Act
 1986 Statement of Financial Accounting Standard Number 87
      SFAS 88/ SFAS 106/ SFAS 132/ SFAS 158




                                      3
Employee Benefit Information




    Mandatory Benefits and Voluntary Benefits




                                4
Related Law Summary
  Mandatory Benefits:
  1.Thai Labor Protection Act 1998
   (The Department of Labor Protection and Welfare,
      Ministry of Labor and Social Welfare)
  - An employer of ten employees must announce employee
      work rules, in Thai.




                                     5
Related Law Summary
  Employee work rules:
  - Working days, working hours and rest periods
  - Weekly and public holidays
  - Overtime and holiday work
  - Date and place of payment of wages
  - Sick leave and maternity leave
  - Disciplinary system
  - Grievance procedures
  - Termination and severance pay



                                       6
Related Law Summary

  Except in cases in which the termination is "for
  cause[1]", a full-time employee who is terminated by
  an employer must be paid severance pay shown as
  follows:
  Period of Employment                   Amount of Severance Pay
  120 days < PE < 1 year                    30 days wages or salary
    1 year < PE < 3 years                  90 days wages or salary
    3 years < PE < 6 years                 180 days wages or salary
    6 years < PE < 10 years                240 days wages or salary
  10 years                                300 days wages or salary
  Employees for a fixed duration less than 2 year contract,
  resignation or dismissal do not qualify for severance
                                              7
Related Law Summary
  2. Other Labor Laws
  - The Social Security Act
  - The Workers Compensation Act
  - The Labor Relations Act &
    The State Enterprise Labor Relations Act
  - The Provident Fund Act
  - The Revenue Code




                                        8
Related Law Summary
  Social Security Act B.E. 2533 (1980)
  (Social Security Office)
  - employers, employees, and the government
  - use in providing protection and welfare in respect of
    non-work related injury or sickness or invalidity or
    death, or maternity or child allowance or old-age, or
    unemployment to employees who are insured persons




                                        9
Related Law Summary
  Social Security Act B.E. 2533 (1980)
  (Social Security Office)
  - Limited rates of contributions:
  * 4.5% of wage for injury, sickness, invalidity, death,
     maternity benefits
  * 9% of wage for child welfare and old-age benefits
  * 15% of wage for unemployment benefits
  * Medical services
  * Compensatory wage




                                         10
Related Law Summary
  Social Security Act B.E. 2533 (1980)
  (Social Security Office)
  * Maternity allowance and child allowance
  * Funeral allowance and survivor allowance in case of
    death
  * Pension benefit for old-age




                                       11
Related Law Summary
  Provident Fund Act B.E. 2530 (1987)
  - Encourage private sector employees to save for
    retirement.
  - Arranged between employers and employee to set the
    Fund Committee to oversee the provident fund
  - The scheme regulatory authority is under the Securities
    and Exchange Commission (SEC)




                                       12
Related Law Summary
  Provident Fund Act B.E. 2530 (1987)
  - Contributions
    - 3% <= Employee <= 15% of wages
    - Employer > = Employee
    - In 2003, Provident Fund 1.41 million
               Enterprises 5,760
               Total Fund Size MBht 287,329 or MUSD 7,183
  - Receive at resignation or retirement
  - Segregation of the fund



                                      13
Related Law Summary
  Provident Fund Act B.E. 2530 (1987)
  - Tax Deductible and the Benefit paid is tax exempted




                                       14
Related Law Summary
  Provident Fund Act B.E. 2530 (1987)
  -   Statistics (www.thaipvd.com)




                                     15
Related Law Summary
  Provident Fund Act B.E. 2530 (1987)
  - Statistics




                                    16
Related Law Summary
 Provident Fund Act B.E. 2530 (1987)
 - Statistics               Q3/2006         2005
   Numbers of Employers         7,330        6,761
   Numbers of Employees 1,772,582       1,665,709
   Net Asset Value MBht      381,828      345,896




                                   17
Employee Benefit Information
 Voluntary Benefits:
 - Proposing attractive retirement benefits
   * Medical care, health insurance & dental care
 - Vary both employment conditions & beneficiary’s
   qualification
 - Expense as incurred
 - Auditor’s requirement




                                      18
Employee Benefit Accounting
  IAS 19 Employee Benefits
  - Jan 1985 IAS 19 Accounting for Retirement Benefits
               in Financial Statements of Employers
  - Jan 1995 Retirement Benefit Costs
  - Jan 1999 Employee Benefits
  - 5 Dec 2002 Amend IAS 19 paragraph 144 - 152
  - 16 Dec 2004 Amend IAS 19 Reporting Actuarial G/L




                                    19
Employee Benefit Accounting
  IAS 19 Employee Benefits
  - Benefit
    * Short-term Benefits
    * Post-employment Benefits
       # Defined Contribution Plan
       # Defined Benefit Plan – Projected Unit Credit
    * Other Long-term Benefits
    * Termination Benefits




                                         20
Employee Benefit Accounting
 Indonesia (July 2004)
 - PSAK 24 Employee Benefits
 - Differences with IAS 19:
     * Share-based Compensation
 - Issues concerned:
     - Working with Actuaries
     - Implementation of the Projected Unit Credit Method
     - Determining Actuarial Assumption
     - Vesting Issue
     - First Time Adoption

                                       21
Employee Benefit Accounting
  The Philippines
  - Jan 2005
    Change from SFAS 24 Retirement Benefit Cost to IAS 19
  - Issues Concerned
    - Accountants/ Actuaries
      - Post Employment Defined Benefit Plans
    - Fund Manager
      - Fair Value of Plan Assets
   - External Auditor



                                     22
Employee Benefit Accounting
  Thailand
  - In 2003, a guideline for Employee Stock Ownership Plan
    Disclosure
  - Currently, TASB set a task force to take responsibility
    for both standards; Employee Benefits and Share-based
    Payment




                                       23
Employee Benefit Accounting
  Thailand
  - Transnational companies get actuarial information from
     experts and record as expenses, with high cost
     (sometimes, costlier than audit fee!)
  - Actuarial experts with reliable licensed in Thailand are
     hardly found
  - Time & Timing for more developed standard of
     actuarial work




                                        24
Problems & Suggested Solutions


  1. Should this standard be implemented to all firms?
  2. Do firms need actuarial expert service?
  3. What will be the concerned factors?




                                       25
Problems & Suggested Solutions
  Solution in transition period:
  - Full adoption
  * Large firms with prompted data should fully estimate
    employee benefit
  * Listed companies tend to be required by regulators to
    use licensed actuarial service




                                      26
Problems & Suggested Solutions
  Solution in transition period:
  - Partial adoption
  * Small firms may pool their data and try to set the
    criteria together
  * This will result in reliable criteria.




                                         27
Problems & Suggested Solutions
  Solution in transition period:
  - Education
  * Seminar in recent October




                                   28
Problems & Suggested Solutions
  Key factor: number of employees
  Factors for Calculation:
    Demographic Factors: Life Expectancy
                           Employee Turnover
                           Average Service Years

    Financial Factors:   Discount Rate,
                         Last Month Salary and Benefit
                         before Retirement,
                         Expected Return of Plan Asset



                                      29
Problems & Suggested Solutions
 Factors Concerned for Calculation:
 Employee level: Gender, employee health, medical fee,
               mortality, life expectancy, service years.
 Firm level:    - Statistical data (approximately 5 years)
               - Number of years of operation,
               - Major activities (manufacturing, service)
               - Employees in affiliated companies or
               administrative plans




                                      30
Impact on Financial Position

  1)   More Liabilities – More risk
  2)   More Expenses – Reduction an share price




                                       31
Preparing for IAS 19

  1)   Survey/ Audit Existing Benefit Plans
  2)   Collect more Information on Material Plans
  3)   Review Policies on Benefits, Funding, and Investment
  4)   Implement Procedures Going Forward




                                        32
Q&A




 -…




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