Non Statutory Benefits

Joanne Q. Catanjal
IR 217 – Prof Milan Bernardo
 WHAT DO YOU IMAGINE FOR YOUR RETIREMENT?

 Travelling to your dream destination

 Indulging in your favorite hobbies

 Do you want to buy an expensive car?

 Do you want to renovate your house?

 Starting your own business

“ There are infinite ways to make great

use of your golden years. Instead of
withdrawing from the world, you can
immerse yourself in a wider spectrum of
activities”. - Business Coach Philippines
 What is a Retirement Pay?

 A benefit, usually money, paid

regularly to retired employees or their
survivors by private business and
federal, state, and local governments.

 Employers are not required to

establish pension benefits but do so
to attract & retain employees.
 Background of Retirement Benefit

 The first retirement plan in the United States

was created by American Express company in
1875.
 From 1875 until WWII pension plans were
adopted primarily in the railroad, banking, and
public utility industries.
 In 1997 about half of all U.S. workers had
retirement plans.

https://legal-dictionary.thefreedictionary.com/Retirement+pay
 How does Retirement benefit work?

 Employers establish retirement plan by

paying a certain amount of money into a
pension fund.
 Employer gives control of the pension fund
to a trustee, who may invest the money in
stocks and bonds and other financial
endeavors to make a small, periodic
contribution to the fund.

https://legal-dictionary.thefreedictionary.com/Retirement+pay
 SCARY TRUTH ABOUT RETIRING

 No savings for retirement

 Little or no pensions

 Health Issues and expensive

health care costs

 Relying on relatives for financial

support
 RETIREMENT INCOME SYSTEM

 First Tier - Social scheme wherein different departments of government, notably the
DSWD, DOH and DOLE implement various assistance programs for the benefit of the
very poor in our society.
 Second tier - is the mandatory defined benefit scheme which is provided for by the
SSS for the private sector workers and the GSIS for the public sector employees.
 Third tier - mandatory deposits maintained at the PAG-IBIG Fund which becomes
available at retirement and for workers in the private sector, the mandatory retirement
pay provided for under Republic Act 7641.
Public sector workers receive from GSIS a benefit that is more generous than the
benefit paid under SSS in part because it is a combination of both the second and third
layer.
 Fourth Tier - is a voluntary tier, and this is where individuals, on their own, buy pension
plans and other pre-need products to provide for the many contingencies in life.

www.oecd.org/finance/private-pensions/2763673.pdf
 HISTORY OF PRIVATE RETIREMENT PLAN IN THE
PHILIPPINES

“ The enactment of Republic Act 4917 (RA 4917)on June 17, 1967 spurred the
establishment of private retirement plans in the Philippines.

“ An act providing that retirement benefits of employees of private firms shall not be subject
to attachment, levy, execution or any tax whatsoever.

“This Act, entitled “An act amending Article 287 of PD No. 442 as amended, otherwise
known as the Labor Code of the Philippines, by providing for retirement pay to qualified
private sector employees in the absence of any retirement plan in the establishment.
 REPUBLIC ACT NO. 7641 – THE NEW
RETIREMENT LAW

Section 1 - Article 287 – Retirement - any employee

may be retired upon reaching the retirement age
established in the collective bargaining agreement or
other applicable employment contract.

“In case of retirement, the employee shall be entitled

to receive such retirement benefits as he may have
earned under existing laws and any collective
bargaining agreement or other agreements. Provided,
however, That an employee’s retirement benefits
under any collective bargaining and other agreements
shall not be less than those provided herein.

https://www.lawphil.net/statutes/repacts/ra1992/ra_7641_1992.html
 COVERAGE OF THIS PROVISION

Republic Act No. 7641 - or the Retirement Pay

Law shall apply to all employees in the private
sector, regardless of their position, designation or
status and irrespective of the method by which
their wages, are paid. They shall include part time
employees, employees of service and other job
contractors and domestic helpers or persons in the
Personal service of another.

The law does not cover employees of retail,

service and agricultural establishments or
operation employing not more than ten (10)
employees or workers and employees of the
National Government and its political subdivisions,
including GOCCs, if they are covered by the Civil
Service Law and its regulations.

https://businesstrips.ph/how-to-compute-retirement-pay-in-the-Philippines/
 COMPUTATION OF RETIREMENT PLAN

A covered employee who retires pursuant to RA 7641

shall be entitled to retirement pay equivalent to at
least one-half (1/2) month salary for every year of
service, a fraction of at least six (6) months being
considered as one whole year.

Private Retirement Plans n the Philippines

 RETIREMENT AGE
 A company may have CBA or employment contract
setting a retirement age different (higher or lower)
from that fixed by law.
 The CBA or employment contract may also
establish a retirement age based on years of
service of the employee.
 The retirement age may also be established on the
combination of the age and the tenure of the
employees.
 For underground mining employees the voluntary
retirement age under the Labor Code is 50 years or
more, but not beyond 60. The compulsory
retirement age is set at 60.
 Early retirement eligibility is generally patterned
after the minimum eligibility for tax free benefits,
that is, age 50 with at least 10 years of service.
www.laborlaw.usc-law.org
 QUALIFICATIONS OF EMPLOYEES SUBJECT TO RETIREMENT PAY

Employees who are covered by RA No. 7641 can have an optional or compulsory retirement.
Optional Retirement – In the absence of a retirement plan or other applicable agreement providing
for retirement benefits of employees in an establishment, an employee may retire upon reaching the
age of sixty (60) years or more if he has served for at least (5) years in the said establishment.
Compulsory Retirement – Where there is no such plan or agreement referred to in the immediately
preceding sub-section, an employee shall be retired upon reaching the age of sixty-five (65) years.
Upon retirement of an employee, whether optional or compulsory, his services may be continued or
extended on a case to case basis upon agreement of the employer and employee.
Service Requirement – the minimum length of service in an establishment or with an employee of at
least five (5) years required for entitlement to retirement pay shall include authorized absences and
vacations, regular holidays and mandatory fulfillment of military or civic duty.

https://businesstrips.ph/how-to-compute-retirement-pay-in-the-Philippines/
 2 Categories of Retirement Plans:
 Defined benefit plans – a specified retirement
benefit level to employees based typically on a
combination of years of service and age as well as
on the employee’s earning level (usually the 5
highest earning years.
 Retirees receive guaranteed payments for the
duration of their lives, but these payments
represent a substantial cost burden to companies
that must ensure adequate funding to support
retirees for longer periods based on rises in life
expectancy.
 Defined contribution plan - the employer places
a certain amount of money in the employee’s name
into the pension fund. Employers invest these
funds on behalf of the employee, choosing from a
variety of investment vehicles such as company
stock, diversified stock market funds, or federal
government bond funds.
 Defined contribution plans put the responsibility for
wise investing squarely on the shoulders of the
employee.
 5 Of the Best Retirement Fund Methods in the Philippines

 Pension Plans - provides retirees with monthly allowances or a whole lump sum amounting to
his/her contribution. One of the most accessible pension plans in the Philippines is facilitated by
the Social Security System (SSS).
 PERA -.is a type of retirement investment plan that can only be availed through banks, insurance
companies, or any other administrator accredited by the Bangko Sentral ng Pilipinas (BSP), the
Insurance Commission, and the Securities and Exchange Commission. It is a voluntary retirement
contribution plan that gives you the freedom to save and invest up to Php 100,000 annually and
the returns are tax free.
 Insurance Plans - investing for your retirement through insurance plans, wherein contributions
lead to compensations. Aside from the financial protection it can provide your family after the
policy holder’s death, insurance plans can serve as your income source upon retirement.
 Financial Plans - Banks, insurance companies, and other institutions offer a variety of funds
already invested in a diverse set of industries. Bonds, stocks, and other investments can be quite
complicated. These institutions manage the money for the retiree and enables them to participate
in these kind of investments without giving the person any stress.
 Real Estate – Value of the property appreciates as years go by, and can give you source of
income.

www.fwd.com.ph/en/live/all_topics_articles/5-best-retirement-fund-methods-in-ph
 MANNER OF BENEFIT PAYMENTS

 Eligibility - Eligibility requirements are generally influenced by the tax laws. A qualified
retirement plan is required to be non-discriminatory, although different plans or benefit
levels are permitted for different groups of employees within certain parameters - for
example, plant employees and head office employees.
 The most common eligibility requirement is for all regular, full-time permanent
employees. A few plans have additional requirements for membership based on a
specified period of service, such as one or two years
 Benefit is still generally reckoned from the date of hire. It is common to include part-
time or probationary employees in the retirement plan.
 ‘Service - In the typical defined benefit plan, service is usually counted from the date
of hire. Even for a newly established plan, past service is generally considered as part
of total service.
 Service often also includes periods of employment with associated companies.
However, there are usually provisions, which allow the deduction from plan service of
certain periods, such as extended leaves without pay
 Salary - salary is usually the regular basic monthly salary, even if employers are
obliged under the law to pay 13 months of salary per year and some even pay 14 or
more months. Other components of variable pay such as bonuses and allowances are
oftentimes excluded
 Majority of defined benefit plans determine the benefits payable based on final salary. A
minority of plans average salary over the preceding 12 months. Longer averaging
periods are even less common and career-average plans are very rare.
 TAXABILITY OF RETIREMENT PAY

“Effective January 1, 1998, retirement benefits paid

in compliance with RA 7641 were exempted from
income tax under Section 32 (B) (6) (a) of the Tax
Code of the 1997 and Revenue Regulation 2-98.

The tax exemption requires however, that the

retiring employee has been in service of the same
employer for the last ten (10) years and is not less
than fifty (50) years of age at the time of his
retirement.

Private Retirement Plans in the Philippines

 FUNDING A RETIREMENT PLAN
Funding - is defined as “the financing of retirement benefits by setting aside funds for the payment of
such benefits in advance of the date on which the benefits become payable.
REASONS FOR FUNDING:
1. Security of benefit - once funds are set aside for the payment of retirement benefits, such funds
can be used solely for that purpose.
2. Reduction of employer outlay – setting aside funds before retirement benefits become due and
payable allows the funds to earn tax-free interest during the interim period (per Republic Act 4917)
thus effectively reducing the total amount of money spent for retirement benefits.
3. Management of cash flow - if funds are set aside on an annual (or more frequent) basis, the
impact on the company's cash flow will be small as compared with the case when the full amount
of retirement benefits is paid at retirement.
4. Flexibility in financing - - although ideally the retirement cost for a particular year should be
funded in that year, there are instances when certain unforeseen circumstances prevent the
employer from doing this.
5. Requirement for tax exemption - Among the requisites of a “reasonable retirement plan” is the
requirement that “The employer, or officials and employees, or both shall contribute to a trust fund
for the purpose of . . . ”. Before a retirement plan can be tax-qualified, therefore, the plan has to be
funded.
REFERENCES:
https://legal-dictionary.thefreedictionary.com/Retirement+pay
https://legal-dictionary.thefreedictionary.com/Retirement+pay
file:///C:/Users/Joanne/Downloads/Download%20Private%20Retirement%20Plans%20in%2
0the%20Philippines%20(1).pdf
www.oecd.org/finance/private-pensions/2763673.pdf
https://www.lawphil.net/statutes/repacts/ra1992/ra_7641_1992.html
https://businesstrips.ph/how-to-compute-retirement-pay-in-the-Philippines/
Private Retirement Plans n the Philippines
www.laborlaw.usc-law.org
https://businesstrips.ph/how-to-compute-retirement-pay-in-the-Philippines/
www.fwd.com.ph/en/live/all_topics_articles/5-best-retirement-fund-methods-in-ph