Actuarial valuation of gratuity

What are the factors that will have an impact on the actuarial valuation of gratuity liability? What will be the magnitude of this impact? How will the gratuity liability impacted if the government increases gratuity limit to Rs 20 lakhs?

These are questions about the actuarial valuation of gratuity which almost every company’s management team wants to know, but probably get to know only after the year-end valuation. Many companies have expressed a need to know what the year-end position is expected to be so they can take a corrective action, if needed.

statutory gratuity plan:
  • Benefit formula = 15/26 * years of past service * final salary
  • Benefit events: Death, disability, resignation (attrition) and retirement Vesting period (i.e. minimum service period) = 5 years, in case of resignation and retirement only.