Setting up Retirement Fund

11th HR Learning EB
Setting Up Retirement Benefit
by Ms. Anabel Valencia
1

THE
INSPIRATION
BEHIND
CSQC s
EMPLOYEES
RETIREMENT

PLAN

1.
The
urgency
of
the
need

-‐
when
in
few
years
time,
many
of
our
personnel
would
start

retiring;

2.
We
had
bigger
dreams

-‐
We
were
not
limited
by
what
the
law
required;

3.
We
had
the
mind
of
David
undaunted
by
the
possibility
of
having
a

match
with
Goliath

-‐
We
wanted
to
make
provision
just
like
the
leading
industries/
companies
did;

4.
We
were
confronted
by
our
own
limitations

-‐
Limited
funds
for
another
retirement
benefit

-‐
Fulfilling
the
expectations
of
our
employees

-‐
Sustainability
of
the
proposed
benefits

5.
We
accepted
the
challenge

-‐
GO
FOR
IT!!!

LESSONS
TO
LEARN
FROM
CLARET
SCHOOL s
RETIREMENT

PROGRAM

1)
Any
endeavor
should
start
with
a
vision.

2)
Unconsciously,
in
those
years
of
the
1980 s,
we
did
what
is
now
the

popular
term,
benchmarking

3)
We
did
periodic
evaluation
to
see
the
sustainability
of
the
program

vis-‐à-‐vis
the
Salary
Scale
of
the
Claret
School.

4)
We
made
the
program
self-‐sustaining
through
its
own
capacity
to

create
wealth
to
earn
through
investments
and
other
programs,
while

assisting
its
own
members.

5)
For
the
maintenance
of
the
retirement
plan,
we
do
actuarial

revaluation
where
we
hire
the
services
of
a
certiﬁed
actuarian

(accredited
by
the
Insurance
Commission).

6)
Lastly,
we
continue
to
be
sensitive
to
the
needs
of
our
personnel.

We
take
care
of
their
future
as
they
do
their
share
in
caring
for
the

future
of
the
school.

SO
WHERE
DO
WE
START?

A.
What
is
the
minimum
requirement
of
RA
7641?

The
RA
requires:

½
month
per
year
of
service

=

equivalent
to
15

days

1/12
of
the
13th
month

=

equivalent
to
2.5
days

(30
days
divide
by
12)

5
days
Service
Incentive
Leave
=

equivalent
to
5
days

Total

=

22.5
days

*One
of
Claret
School s
retirement
programs
pays

This
much,
computed
at
22.5
days
over
30
days
=
75%

B.

Who
are
covered?

This
beneﬁt
applies
to
all
employees
except:

1)

government
employees;

2)
employees
of
retail,
service
and
agricultural
establishments/
operations
regularly
employing
not
more
than
ten
(10)
employees.

C.

Are
employers
required
to
put
up
a
retirement
plan?

It
is
mandatory
to
pay
the
retirement
beneﬁt,
but
not
to
formally
put

up
a
retirement
plan.

In
1992,
Republic
Act
7641
was
enacted
by
Congress
requiring
all

employers
to
provide
for
retirement
pay
to
qualiﬁed
private
sector

employees
in
the
absence
of
any
retirement
plan
in
the
establishment.

The
law,
however,
requires
for
payment

once
it
becomes
due
and
payable,

according
to
any
existing
CBA
or
other

agreement,
when
the
employee
reach

his
retirement
age
of
60
years
or
more,

but
not
beyond
65
years
which
is
the

compulsory
age,
and
has
served
the

company
for
at
least
5
years.

It
is
not

mandatory,
however,
that
the

Employer

puts
up
a
formal
retirement

plan).

2)

Know
the
beneﬁts
of
formally
putting
up
a

retirement
plan
or
program

While
it
is
true
that
employers
are
not
formally
required
to
set
up
a

retirement
plan,
it
would
be
to
the
advantage
of
both
employee
and

employer
if
such
is
put
up
early
enough
and
gets
the
accreditation
of

the
BIR:

On
the
Part
of
the
employee:

Tax-‐exempt
retirement
beneﬁts.

-‐Once,
a
retirement
plan
is
accredited
by
the
BIR,
an

employee
retiring
at
age
50,
and
with
at
least
10
years

of
service
will
be
entitle
to
a
tax
free
retirement
pay,

even
if
it
is
greater
than
the
minimum
requirement
of

the
law.

(RA
4917-‐
BIR
Reasonable
Private

Plan

-‐
A
reasonable
private
benefit
plan
is
one
wherein
contributions
are

made
by
the
employer
for
its
employees,
for
the
purpose
of

distribution
of
the
principal
and
the
earnings
of
the
fund
(Sec
32
(B)

(6)
NIRC.

At
any
time,
no
part
of
the
fund
shall
be
diverted
to,
use
for,

other
than
for
the
exclusive
benefits
of
its
officials
and
employees.

-‐Whereas,
without
an
established
Retirement
Plan,
(BIR

accredited)

the
benefits
of
a
retiring
employee
is
only
tax-‐exempt
upon
reaching

the
age
of
60,
and
has
been
in
the
service
for
at
least
five
(5)
years
(RA

7641);

Security
of
Benefits

Funding
enhances
the
security
of
the
benefit
rights
of
the

employees.

Absence
of
funding
would
make
the
employees
completely

dependent
upon
the
employer s
future
willingness
and
ability
to
fulfill

his
obligations.

The
temptation
to
use
the
fund
for
other
purposes
will

be
avoided
on
the
part
of
the
employer
if
the
fund
is
segregated.

On
the
Part
of
the
employer:

C.

Tax
deductible
expense
on
the
part
of
the
employer

Contributions
to
the
retirement
fund
may
be
considered
as
a

tax

deductible
expense,
including
the
amortization
of
past
service

beneﬁts.

D.

Tax-‐free
investments
of
the
retirement
fund

Generally
interests
from
savings

deposits
and
investments
are
subjected

to
withholding
taxes,
but
earnings
from

Investments
of
an
accredited
retirement

plan
is
tax-‐exempt;

E.

Cost
aﬀordability

Looking
at
cost
aﬀordability,
it
may
be
good
to
start
early
even

when
your
company
is
small
or
relatively
young.

You
will
be
able
to

spread
your
costs
over
a
longer
period
of
time,
than
deferring
it
in
the

future
when
most
of
your
employees
would
be
nearing
retirement.

Besides,
companies
may
not
be
ready
for
a
big
cash
outlay
when
an

employee
retires;

F.

Flexibility
in
ﬁnancing

Once
the
performance
of
the
plan
is
good,
the
required

contribution
may
decrease
or
may
even
be
temporarily
suspended
in

case
the
plan
is
already
fully
funded.

Putting
up
a
retirement
plan,
if
you
are
just
starting
may
strain

your
company s
resources,
depending
on
your
size,
and
the
proﬁle
of

your
personnel.

If
you
have
more
personnel
nearing
retirement,
then

this
may
require
the
company
to
put
up
upfront
a
substantial
amount,

unlike
if
your
employees
are
relatively
young.

This
is
also
one
reason

why
companies
would
refuse
to
hire
employees
nearing
retirement.

3)

Know
your
goals
and
objectives

Putting
up
a
retirement
plan,
for
some
companies,
is
not
just

mere
compliance
with
the
requirement
of
the
law.

It
is
often
created

by
companies
for
employees
as
a
means
of
recruiting
the
best

candidates
for
employment,
rewarding
their
employees
for
their
years

of
service
and
invaluable
contribution
to
the
company,
as
an
incentive

to
retain
the
best
ones,
and
ﬁnally
as
a
retirement
money
so
a

separated
member
would
be
able
to
secure
his
future
when
he
starts

new
stage
of
his
life..

Traditionally,
this
was
the
intention
of
any
retirement

program,
until
such
time
that
the
retirement
beneﬁt
was
prescribed
by

law
for
employers
to
comply
with,
hence
the
giving
of
retirement
as

part
of
a
compensation
package
is
no
longer
a
privilege
given
to

employees,
but
it
is
a
right
due
to
them
upon
reaching
the
retirement

age.

But
knowing
your
objectives
in
putting
up
a
retirement
plan

would
help
you
decide
on
the
beneﬁts
you
may
want
to
include,
other

than
the
minimum.

4)
Know
your
competitors

After
assessing
your
goals
and
objectives,
and
especially
if
the

Retirement
Program
is
part
of
your
company s
strategy
for

recruitment,
it
is
best
to
know
who
your
competitors
are
and
how

much
do
they
oﬀer.

Prospective
recruits
who
will
be
the
potential

leaders
and
managers
of
your
business
put
premium
on
retirement

beneﬁts.

5)
Know
your
company s
capacity
to
pay

It
is
important
that
you
consider
the
sustainability
of
the

benefits
proposed
considering
your
company s
resources,
its

ability
to
pay
the
amortizations,
and
other
benefits
you
may

want
to
include
on
top
of
what
is
mandated
by
law.
Your
finance

department
should
be
able
to
prepare
their
projections
and

calculations,
if
not,
you
may
consult
a
financial
adviser
who
may

be
able
to
analyze
your
company s
performance,
as
well
as
make

an
external
analysis
of
your
environment/market
competitor.

6)
Know
the
various
tax
legislations
and
implications

on
your
proposed
plan

There
are
diﬀerent
kinds
of
retirement
plan,
but
some
of
these

may
not
be
able
to
enjoy
certain
tax
beneﬁts.

It
will
be
proper
that

when
you
discuss
with
some
providers
like
insurance,
pensions,
or

other
pre-‐need
companies,
tax
implications
should
be
discussed.

You

would
always
want
tax
savings
or
tax
deductibility
for
any
investment

and
expenses
your
company
would
incur.

In
the
case
of
CSQC,
we
adopted
a
trusteed
plan

with
a
deﬁned/pre-‐established
beneﬁt
which
is
a
tax

exempt
plan.

Mere
provisions
or
accruals
of
retirement

contributions
during
the
year
by
the
employer,
without
a

BIR
accredited
plan
are
not
deductible
for
tax
purposes.

SETTING
UP
FORMALLY
YOUR
RETIREMENT
PLAN

1.  DRAFTING
OF
THE
RETIREMENT
PLAN
RULES
AND

REGULATIONS

-‐

In
the
case
of
CSQC,
the
formal
set
up
started
with

drafting
our
own
document
where
we
laid
out
some

provisions
collated
as
a
result
of
our
meetings
and

discussions
with
our
personnel
and
management.

-‐

We
had
a
prototype
plan
so
it
was
easier
to
prepare
the

draft.

Vital
issues
you
may
need
to
decide:

A.
Eligibility
for
Membership

-‐
How
long
does
an
employee
need
to
wait
before

he

becomes
eligible
for
the
plan?

Some
plans
may
offer
immediate
entry,
upon

permanency,
or
after
satisfaction
of
a
certain
number
of

years.

-‐

Who
are
covered
by
the
plan?

Again,
consult
what
is
mandated
by
law.

Although,

full-‐time
and
part-‐time
employees,
if
they
are
regularly

employed
are
supposed
to
be
covered.

B.

Benefit
options

-‐
Early,
Normal
and
Late
Retirement

-‐
Resignation
Benefit

1.

CONSULT
AN
ACTUARIAN

-‐
To
do
Computation
of
costs
of
current
contribution

and
past
service
liabilities
the
Actuarial
Valuation

—  to
the
retirement
fund
considering
factors
like:
salary

rates
increase,
rate
of
investment
returns,
employee

withdrawals
from
the
fund.

— 

-‐

To
do
the
ﬁnal
draft
of
the
plan

The
following
data
will
be
needed
for
actuarial
valuation:

1)

Name
of
employees

2)

Birthdate
and
age

3)

Gender

4)

Date
Hired

5)

Salaries
and
Salary
increase
rates

6)

Estimated
rate
of
return
on
Investments

7)

Initial
funding
(if
any)

3.
COMPANY
APPROVAL

Approval
of
the
Board
of
Trustees
accompanied
by
a

Secretary
Certiﬁcate.

4.
SELECT
A
TRUSTEE

Appointment
of
a
Trustee
is
necessary
who
may
be

an
individual
or
group
of
individualS
(Retirement
Board
of

Trustees)
or
a
corporation
with
a
trust
license
–
banks,

investment
house,
insurance
companies
and
the
like.

The

Retirement
Board
of
Trustees
may
be
any
oﬃcer
or

employee
of
the
company
or
even
one
who
is
not
related
to

the
company.

5.
FILE
FOR
BIR
ACCREDITATION

FILE
YOUR
RETIREMENT
PLAN
FOR

ACCREDITATION
WITH
THE
BIR

The
ultimate
reason
of
formally
putting
up
a

retirement
plan
is
mainly
due
to
tax
and
cost
beneﬁts

that
go
with
it,
hence
do
not
forget
to
ﬁle
for
the

accreditation
of
your
document
with
the
Bureau
of

Internal
Revenue.

All
of
the
documentations,
legal

requirements,
calculations
on
contributions
required

and
projected

amortizations
are
part
of
the
services

that
you
can
avail
from
actuarial
companies

you
hire
to
do
it
for
you.

Finally,
let
me
share
with
you
my

thoughts
about
re4rement:

— RETIREMENT

is
not

just
about
saving
money;
it
is
also

about
saving
friendships
and

memories,
and
leaving
the
legacy

of
a
life
well-‐lived.

It
is
sowing

good
seeds,
and
allowing
others

to
reap
–
but
the
joy
of
it
all,
its

fullness
you
reap.

My
prayer

— May our lives be like a
blazing torch,
shining in glorious
splendour through
the passing of years;
strong in character, ﬁlled
with virtues
and good deeds;
and above all motivated
by love.

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