Setting up Retirement Fund


Published on

  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Setting up Retirement Fund

  1. 1. 11th HR Learning EBSetting Up Retirement Benefit by Ms. Anabel Valencia 1
  2. 2. 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!!!  
  3. 3. 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.      
  5. 5. 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%        
  6. 6. 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.            
  7. 7.    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).        
  8. 8. 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:        
  9. 9. 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              
  10. 10. -­‐  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);            
  11. 11. 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.            
  12. 12. 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;            
  13. 13.  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;          
  14. 14.  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.        
  15. 15. 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..      
  16. 16.   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.          
  17. 17. 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.      
  18. 18. 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.        
  19. 19. 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.      
  20. 20.       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.      
  21. 21. 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.   
  22. 22.    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  
  23. 23.    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  
  24. 24.    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)   
  25. 25. 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       
  26. 26. 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.      
  27. 27. 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.  
  28. 28. 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.