Exploring the Nature of Social Security Scheme Trust Fund | Defined Benefit or Contribution Plans
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- By Taxmann
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- Last Updated on 6 May, 2024
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According to Ind AS 19, “Employee Benefits,” a “Defined contribution plan” is a type of post-employment benefit plan where an enterprise contributes a fixed amount to a separate fund and has no further obligation to pay additional contributions if the fund lacks sufficient assets to cover all employee benefits for current and past service. On the other hand, “Defined benefit plans” include all post-employment benefit plans that are not defined contribution plans.
The primary differences between these two types of plans are as follows:
- In a defined contribution plan, an enterprise’s liability is limited to the contributions it makes to a fund for its employees, with no additional obligations.
- In contrast, defined benefit plans require the employer to provide the promised benefits to both current and former employees, which means the employer’s liability goes beyond just making contributions to the fund.
To determine how a company should account for a fund established for its employees’ benefits, it is crucial to ascertain the nature of the fund. The discussion here revolves around the nature of a Social Security Scheme Trust Fund, taking into account the Expert Advisory Committee’s (EAC) opinion on the matter.
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