1. Defined Benefit Vs. Defined Contribution
Existing PRBS (Post Retirement Benefit Scheme) is a defined benefit scheme.
From the Scheme will be converted to a defined contribution scheme.

2. Defined Benefit
Defined Benefit Scheme: A defined benefit (DB) plan is a plan in which the benefit on retirement (pension) is determined by a set formula. For example Rs.100 pension for each month of service. The funds are managed from a common pool to which the employer and plan members contribute.

3. Defined Contribution
Defined Contribution Scheme: In a defined contribution plan, contributions are paid into an individual account for each member. The contributions are invested and the returns on the investment are credited to the individual's account. Similar to our PF account. On retirement, the accumulation in the member's account will determine the pension.

4. The New Scheme
As per the DPE Guidelines, an employer can contribute 30% of an employee’s Basic + DA towards retirement benefits w.e.f The retirement Benefits include PF, Gratuity, Medical Benefits and Pension. Currently 12% is contributed towards PF, gratuity accounts for 1.5%. Medical benefits for the period 2007 to 2012 are valued at 1.5%.

5. The New Scheme
The balance 15% will be contributed towards the pension scheme. (The medical benefits and gratuity % will be reviewed every year, as such the % of pension contribution will vary) In addition to the employer contribution, employee will contribute 3% of his Basic + DA (Contribution to start from ). Further the existing contribution equiv. to Uniform Allowance will continue without any change.

6. The New Scheme
Thus the individual’s pension account will receive three contributions: Employer’s Employee Amount Contribution + Contribution + Equiv. to (balance of 30%) 3% Uniform all. The trust will invest this amount and interest credited to individual’s account.

7. The Existing Scheme
The Total corpus under PRBS as on is to be transferred to the individual account under the new scheme through a defined formula. Under the new scheme each employee will get a regular monthly employer contribution to his account. The later the retirement beyond 2007, the more the contribution will be. While employees retiring nearer to 2007 will not be able to build a big corpus under new scheme

8. Conversion of the Existing Scheme
As such the conversion formula takes into account the length of service the employee has put in till , the period for which he has been a member of the PRBS and his basic pay as on (revised). The formula aims to provide benefits in terms of the above three factors.

9. Conversion Formula
The conversion formula is: Every employee who has completed 33 years of reckonable service (as defined under the PRBS) will be given a pension of 50% of his basic salary as on This pension amount will be converted into annuity corpus by multiplying with the annuity factor of (the rate as on ).

10. Conversion Formula
For example if an employee has a basic salary of Rs as on and has completed 33 years of reckonable service. The pension amount will be * 50% = Rs And the conversion corpus will be: * = Rs. 33,14,917

11. Conversion Formula
The percentage pension will be proportionately reduced for reckonable service less than 33 years. For example if the employee has completed 25 years of reckonable service with basic as as on The applicable conversion pension will be: 50% * (25/33) * = Rs And Conversion pensionable corpus will be * = Rs. 25,11,300.95

12. Conversion Formula
However the conversion benefit will be payable only on the date of retirement i.e. the employee has earned the pension benefit but the pension has not become due. It is due only on the date of retirement. If in the example above, the employee is actually retiring on , the pension corpus of Rs. 25,11, earned by him as on is payable only on

13. Conversion Formula
The corpus to be transferred to the employee’s account as on will be arrived at by calculating the present value (as on ) of Rs. 25,11, payable on In simple terms it means how much should be invested as on given a return percentage so that it grows to Rs. 25,11, on The return percentage is the discounting factor.

14. Conversion Formula
The rate of return or the discounting factor used in the conversion formula is 9.5%. So the conversion benefit in the above example will be the amount to be invested on which earns 9.5% every year, so that it grows to Rs. 25,11, on , which will be: / (1+9.5%)^8.5 = 11,61, Thus Rs. 11,61, will be transferred to the employee’s account in the new scheme from the old scheme.

15. Conversion Formula
Thought the scheme is applicable from The DPE guidelines had been finalised only by The conversion workings were completed by As such the effective date of corpus transfer has been kept as So the discounting of the conversion corpus will be done till instead of In the example above, the conversion corpus will be: / (1+9.5%)^3.25 = 18,69,833.23

16. Conversion formula
As a result of the conversion formula, the conversion corpus for some of the members will fall below the actual contribution put in by the members till For such cases the contribution made till along with 8.5% interest will be the conversion corpus. Thus the higher of the contribution with 8.5% interest or the amount arrived at by the conversion formula, will be transferred to employee’s account. As per our analysis, officers joining on or after 1995 will have to be provided protection of corpus with interest.

17. Conversion Formula
Based on the above conversion methodology, the fund position as on was reviewed and a shortfall of Rs crores was envisaged. The infusion of this amount for conversion of the scheme has been approved by the ONGC Board as well as the Ministry.

18. Income Tax Impact
As per section 17(2)(vii) of the IT Act any contribution by the employer to the superannuation fund of an employee above Rs lac is taxable. During the Year 2007 & 2010 PRBS was reviewed and around Rs. 900 crs & Rs. 160 crs. was infused by ONGC in the scheme. This infusion had exhausted the exemption limits for the years to

19. Income Tax Impact
The conversion is being effected in the year Thus for tax purposes, the consolidated impact from to will be considered i.e. the employer’s contributions made from to along with conversion corpus received from Rs crore infusion as reduced by the exemption limits for the year to (Rs lacs) will be taxable.