A:

A provident fund shares many attributes of the U.S. Social Security program, including government sponsorship and set contribution rates.

Social Security

President Franklin D. Roosevelt created the U.S. Social Security program in 1935 as part of his New Deal initiative. Though it is often the center of much political debate, this public welfare program is undoubtedly one of the cornerstones of the American democratic ideal.

Provident Funds

Provident funds are used in countries such as South Africa, Malaysia, India and Hong Kong. Like the Social Security program in America, these funds are instituted by the central government to provide for citizens who are no longer able to work due to age or disability.

Income Requirements

Depending on the program, there may be minimum and maximum thresholds for contribution and income under both Social Security and provident fund programs. In India, for example, contributions are only mandatory for those earning less that 15,000 rupees per month and their employers. Individuals who exceed this income limit have the option to contribute to the fund but are not required to do so.

Contribution Requirements

Under both the Social Security and provident fund systems, contributions are often mandatory for both employees and employers.

The central government dictates the method and rate of contribution under both systems. However, while the U.S. Social Security program has a fixed rate for all individuals, some provident funds allow for increased contributions above a set minimum. In either case, contributions are collected through a payroll tax and all contributions made by employees are then matched by the employer.

As of 2015, the Social Security tax rate is 6.2%, meaning that the total contributions for a single employee equals 12.4% of his salary. The Indian provident fund requires a minimum contribution of 12% of each employee's basic pay, which must be matched by the employer for a total contribution of 24%.

Other Similarities

There are numerous other similarities between the Social Security program and provident funds, including minimum age requirements for withdrawal and opportunities for early disbursement under certain conditions.

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