EPFO on utilisation of reserves and surplus in the exempted PF Trust

The Employees’ Provident Fund Organisation (EPFO) issued internal circular no. E.III/10(122)/2024/Circular/Exemption/5435, dated October 7^th 2024, which rescinds a previous circular permitting the use of reserves and surplus to enhance interest payments for members of exempted trusts. The EPFO noted that certain trusts, upon surrendering their status, requested approval from regional EPFO offices to allocate the remaining balance in their reserves and surplus by providing interest to current beneficiaries at rates significantly higher than those set by the EPFO for its members. After a thorough review of the matter and its legal implications, the EPFO has provided the following clarifications:

• A significant surplus reflected in the Trust’s balance sheet suggests that earnings from prior years have not been distributed proportionately among current beneficiaries. Consequently, it follows that higher earnings from previous years should have resulted in increased interest for these beneficiaries.
• Interest must be credited to beneficiary accounts on a monthly running balance basis, effective from the last day of each year; therefore, no interest can be credited for partial periods within a year.
• The interest rate applicable to beneficiaries of Exempted Trusts must align with the Fund’s earnings.
• Any overdrawn reserves and surplus are strictly prohibited at all times.

In light of these observations, the EPFO has updated its guidelines, stating that reserves and surplus in the accounts of exempted provident fund trusts should not be used for interest payments to members. Any surplus fund held by the trust must be transferred to the Central Board of Trustees EPFO upon the cancellation or surrender of exemption, in accordance with the explanation provided in the relevant paragraph of the EPF Scheme.