Pension compliance: What the employer failed to do

A plastic manufacturing company in a suburb area of Lagos has had a successful production day on Tuesday May 24, 2016 until about 4am in the morning when a session of the factory caught fire due to an electrical spark. But with the intervention of the men of the fire service, the situation was brought under control about an hour later with loss of three lives and a reasonable proportion of the factory, where production plant is housed.

When the level of loss was ascertained by the insurance companies, the company got compensationfor fire loss on the property and its production plant, which the company has deployed to rebuild the factory and acquire new plants.

Unfortunately, what the company failed to do, which could have also helped it manage the crises is insurance for its employees. Now the families of the deceased staff are holding the company to ransom. They have stopped repair work on the factory, stopped production until the victims were adequately compensated.

Now the company is running helter-skelter looking for money to pay death compensation, whereas if the company had done what is right, insurance companies under the Pension Reform Act 2014 would have paid for compensationto the victims’ families, and business would continue uninterrupted.

When investigated, it was discovered that the company truly enrolled its workers in the Contributory Pension Scheme (CPS), and was actually contributing into their Retirement Savings Account (RSA) through their chosen Pension Fund Administrators(PFAs), but failed to comply with the provision on group life insurance for its employees.

The Pension Reform Act 2014 makes it compulsory that employers of labour to which this Act applies must as a matter of legislative requirement take life insurance cover for their employees.

That, beyond complying with provisions of the law on Contributory Pension Scheme (CPS), life insurance is another aspect of the employee welfare scheme that employers must provide.

Otherwise, the affected organization risks being sanctioned by the pension regulator, the National Pension Commission (PenCom) as provided in the Pension Reform Act 2014.

In accordance with the provisions of Section 4(5) of the Pension Reform Act (PRA) 2014 and Section 5.5 of the Guidelines for Insurance Policy for Employees, Employer of labour covered by the PRA 2014 are required to submit copies of the Insurance Certificate with the schedule of benefits to the National Pension Commission (PenCom).

An employer that fails to comply hasdefaulted of Section 4(5) of the Pension Reform Act (PRA) 2014.

The Guidelines for Life Insurance Policy for Employees can easily be assessed and downloaded from the website address: www.pencom.gov.ng/ guidelines for Life Insurance Policy.

Please note also that compliance with PRA 2014 is not complete without the Group Life Insurance Policy.

It is the right of an employee to have a group life insurance. It is a scheme that can be likened to a death-in-service policy, designed to pay a benefit called the sum assured to the next of kin or dependants of an employee who dies in active service.

Life insurance policy involves the payment of a premium to the insured against the death of an employee either by natural or accidental causes. It is wholly paid for by the employer and enjoyed by the employee if the death occurs prior to terminal date. The policy also can  provide  for  accident  at  work  that  results  in permanent  disability  as  well  as  cover  for  burial expenses by way of extension to the policy.

It therefore demonstrates to employees that the employer places a great premium on their lives and contributions to the development of the organisation. The product  will  therefore  raise  the  profile  of  the organisation  in  the  society  as  a  socially  responsible employer of labour. Besides, the scheme will serve as an additional incentive for employees to work harder.  Since  it  is  statutorily  required,  employers  who  procure  the  policy  would  also  enjoy  tax exemptions.

According to the guidelines, employer is required to fully bear all costs in relation to procurement of this policy, and this shall be in addition to the contributions to be made by the employer to each employee’s Retirement Savings Account.

The policy provides cover to the insured against death and the insurance cover is mandatory for all employee as long as they are in employment. This means that the policy provides for the payment of the sum assured in the event of the death of a member of the scheme from any cause, natural and accidental.

Similarly, the policy also provides for the payment of the sum assured for those in common employment in the event that an insured person disappears and is not seen for a period of 12 months and there is sufficient evidence to assume that the member is dead.

This insurance coverage is for 12 months, from January through December, and shall be renewable at the end of each coverage year. The premium payable on the policy shall be pro-rated as applicable where an employee joins the scheme in the course of the year.

Where an employee leaves the service of the employer before the expiration of 12 months, the premium paid relating to the unexpired period, shall be returned/set aside to the credit of the employer.

Each employer is required to obtain an insurance certificate from the insurance company as an evidence of having arranged the insurance contract.

Such certificate is expected to be accompanied by a schedule which shall indicate amongst other things, the period of coverage, the number and details of staff at inception/ renewal date, their total emoluments, the benefit payable and the annual premium/date of full payment.

The insurance certificate is usually issued to employers by the insurer within a month from the policy inception/renewal date.

Employers are also mandated to display a copy of the insurance certificate in a conspicuous place within the premises, for the information of the employees, as evidence of having taken such policies.

Thereafter, the employee’s PFA shall validate claim amount and where discrepancies arise, this must be resolved with the employer.

Claims are required to be settled by the insurer within seven working days of receipt of complete documentation and acceptance of liability.