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Section 118: Valuation of assets and liabilities by actuary

The Code on Social Security, 2020 (Act No. 36 of 2020) • Official Statutory Text & Plain English Practice Guide

Statutory Mandate
Chapter X: Finance and Accounts
Competent Labour Forum
Act No. 36 of 2020
Section 117 All 163 Sections of Code on Social Security, 2020 Section 119

Legal Commentary & Landmark Judgments: Section 118

Section 118 of the Code on Social Security, 2020 mandates periodic actuarial valuations of the assets and liabilities of social security funds, establishing an empirical financial safeguard to guarantee the long-term solvency of pension, disability, and employee benefit schemes.

  • Mandatory Triennial Actuarial Valuation: Enacts that every Social Security Organisation managing long-term pension, provident fund, or disability funds shall, at least once in every three years (or at such intervals as prescribed), cause an actuarial valuation of its assets and liabilities to be made by an approved actuary.
  • Empirical Assessment of Fund Solvency: Requires the actuary to evaluate demographic trends, longevity tables, interest yield fluctuations, and future pension drawdowns to determine whether the fund maintains actuarial surplus or faces projected structural deficits.
  • Statutory Adjustments to Contributions and Benefits: If the actuarial valuation reveals that the liabilities of the fund exceed its assets, or conversely that a significant surplus exists, Section 118 empowers the Central Government to adjust contribution rates or revise the scale of benefits upon the recommendation of the actuary.
  • Mandatory Transmission to Central Government: The complete actuarial valuation report, together with the actuary's explanatory memorandum and recommendations, must be forwarded to the Central Government for policy review and legislative disclosure.
Key Landmark Precedents:
  • Life Insurance Corporation of India v. Escorts Ltd. (1986) 1 SCC 264: The Supreme Court recognized the paramount scientific importance of actuarial valuations in assessing the long-term financial stability of statutory corporations managing life and pension funds.
  • Regional Provident Fund Commissioner v. Sanatan Dharam Girls Secondary School (2007) 1 SCC 268: Affirmed that statutory employee welfare funds must be administered with rigorous financial and actuarial discipline to guarantee that accrued worker benefits are fully backed by solvent reserves.
  • Workmen of Metro Theatre v. Metro Theatre Ltd. (1981) 3 SCC 596: The Supreme Court held that long-term gratuity and pension schemes must be structured on sound actuarial principles rather than ad hoc cash accounting.
Courtroom Practice & Strategic Litigation Guidance:

Trustees of exempted private provident and pension funds, as well as statutory board executives, must engage Fellows of the Institute of Actuaries of India (IAI) to conduct Section 118 valuations. Provide the actuary with complete demographic census data of covered employees, wage inflation models, and attrition rates. If the actuary flags an unfunded liability, management must immediately formulate a phased capitalization schedule to replenish trust deficits and prevent cancellation of statutory exemptions.

Section 117 All 163 Sections of Code on Social Security, 2020 Section 119