Document Fragment View

Matching Fragments

Further, according to the appellants, there was shortfall of Rs.155 crores which is as under:

"Rs. in Crores
(a) Increase in annuity cost on account of 65 revision of grades and pay scales
(b) Non-escalation of additional contributions 60 since 1995 @ 10%
(c) Loss of interest on contribution from April 30 1994 to April 1996 ______ Rs.155"

It is contended that the aforesaid deficit of Rs.155 crores, as assessed by the actuaries, only represents the gap between the present value of all future pension liability of the Trust as per the original defined benefit scheme and the present value of all future contributions to be collected by the trust, as originally determined. The actuaries had assessed the increase in annuity cost on account of revision of pay scale at Rs.65 crores. This is sought to be illustrated by the appellants by giving figures of pre-revised Basic + DA and pension calculated at the rate of 40% and cost of annuity and contribution of retiring employee and also giving figures of revised scales and resultant increase of cost of annuity without proportionate increase at employee's contribution. The break up of 60 crores on account of non-increase in the additional contribution of Rs.350 has also been given. The break up of deficit of Rs.30 crores has also been given. As per the Scheme, the contribution of the members was in two parts (a) 1% to 5% contribution of Basic and D.A. and (b) additional contribution of Rs.350 per month. Further, all members who retired in the period from April, 1994 to August, 1996 did not make the additional contribution of Rs.350 p.m. in their 15 years lump sum contribution. The impact of non-escalation of additional contribution of Rs.350 has been assessed at Rs.60 crores. It has been pointed out that the Scheme was applicable to all employees who retired from 1st April, 1994 but actual deductions of contributions from monthly salary commenced from September, 1996. It is stated that various unions representing the members were not agreeable for their members making a lump sum contribution and requested Air India Management to appropriate and pay the Trust such arrears of contribution for the period April, 1994 to August, 1996 from the wage agreement arrears as and when these were paid. Air India was facing a severe financial crunch at that point of time and the Management had signed agreement with the Unions to the effect that though revised pay scales were implemented immediately, arrears would be paid only when the company's liquidity position permitted the same. It was understood that the Management was not to pay any interest on such deferred payment of arrears. The payment of arrears of pension contribution to the Trust, therefore, was also deferred until the settlement of wage arrears i.e. till March 2000. This resulted in loss of interest on such arrears.

The retirees have also given facts and figures giving calculations based on pre-revised Basic and DA with accrued interest (without escalation) as also calculations based on revised Basic and DA without escalation and the calculations based on with escalation. Further, according to the retirees, the trustees took no steps to either approach Air India to recover the monies which is stated to be due from Air India nor they approached the Income Tax Officer for permission to invest amounts in short term deposits nor have they taken steps to revise contributions. According to them, the trustees to save their own skin attempted to recover the amounts from the retirees under the guise of acting fairly to balance out the difference without explaining as to what prevented them from taking requisite steps while the retirees were still in employment. They have also highlighted the factor of failure of trustees to take steps for making the recoveries from Air India which kept amount after deducting the same from the salaries of the employees. It is not necessary to go into detail calculations. It does appear that there is shortfall in the Fund though a lot can be said in respect of calculation submitted by both sides. No doubt, the amount which went out of the fund for purchase of annuity for retiring employee was considerably more than what was contributed by the outgoing employee but it is also true, at the same time, that the huge amounts did not come to the fund from Air India and some of assumptions on which Scheme was formulated did not hold good on commencement of the Scheme. The reason for the position of the fund which necessitated the amendment cannot be attributed entirely on account of the gap between the amount contributed by the retiring employee and the amount used for purchase of annuity. It may also be noted that the appellant's own case is that there was basic fallacy in the Scheme from its inception. The Scheme, as originally conceived was flawed, is the stand of the appellants in CA No.4267 of 2003. It is further their own stand that concept of granting annuities on a defined benefit basis in a self-contributory fund is inherently fallacious as in the self-contributory scheme the only consideration is the contributions made by the members and hence the benefit has to necessarily flow from their contributions and the interest accrued thereon. As against this, the present is a case of defined benefit Scheme. This basic fallacy in the Scheme was never rectified from inception. It is the own case of the appellants that in addition to this inherent fallacy in the formation of the Scheme, the situation was aggravated by various factors noticed above. We would assume that there were several contributory factors as a result of which the fund position became quite bad. The factors included the non-receipt of huge funds in time from Air India, lack of proper investment by the trust resulting in loss of interest in addition to the fallacy in the scheme being gap between the contribution and the amount required for purchase of annuity to ensure return of specified amount to the retirees.

It may be that the last of the aforesaid factor contributed most in the depleted financial position of the fund requiring the trustees to make the amendments in the scheme on 3rd April, 2002, but it has to be borne in mind that the original scheme was a 'Benefit Defined Scheme' as opposed to a 'Contribution Defined Scheme'. It has now been conceded on behalf of the appellants that there was no fraud in formulation or implementation of the scheme. Besides aforesaid factor, there were other factors, such as, considerable delay in Air India remitting arrears of pension contribution amounting to Rs.23 crores to the trust, non-payment of interest by Air India on late payments etc. The retirees received what was receivable by them according to the existing scheme on the date of retirement. The pension scheme, as originally conceived and formulated, was a rolling scheme postulating outgoing employees on retirement and their place being taken by induction of new employees whose contributions would add to the fund. According to the figures given above, the shortfall in the fund was in the sum of Rs.41.83 crores which was sought to be made up from 1852 retirees. According to the retirees, if they are asked to make good that amount, on average each pensioner will have to repay a sum of Rs.2,25,863/-. At the same time, if the amount is contributed by the existing over 16,500 employees to make good the aforesaid differential amount of Rs.41.83 crore, they would be required to pay about Rs.25,000/- each which can be split into convenient installments. On distinction between 'Defined Benefit Plan and 'Defined Contribution Plan' Mr. Arun S. Murlidhar in 'Innovations in Pension Fund Management' states :

(Emphasis supplied by us) According to learned author, there are several ways in which the aforesaid plans can be funded. In general, country's social security systems are pay-as-you-go (PAYG), Defined Benefit schemes which tax current participants to pay retiree benefits. However, corporate or occupational defined benefit or defined contribution schemes tend to be funded both partially and fully. Funding requires allocating funds prior to retirement in order to service future liabilities.