Importance of setting up an employee retirement fund

As per Republic Act No. 7641, Employers are required to pay retirement benefits to their employees,  in the private sector, regardless of their position, designation or status and irrespective of the method by which their wages are paid, except to those listed under the exemptions.

"... an employee upon reaching the age of sixty (60) years or more, but not beyond sixty-five (65) years which is hereby declared the compulsory retirement age, who has served at least five (5) years in the said establishment, may retire and 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.

Unless the parties provide for broader inclusions, the term one-half (1/2) month salary shall mean fifteen (15) days plus one-twelfth (1/12) of the 13th month pay and the cash equivalent of not more than five (5) days of service incentive leaves.
"

Given this, Employers should plan on how to establish and fund the retirement plan to enjoy the following benefits:

  • Company can enjoy tax-free investments of the retirement fund.
  • Employer will have no issues on cash flow even if there are big cash outlay when an employee retires.
  • Benefits to be received by Employee (in excess of the minimum required by law) will not be taxable.
Retirement Plan: 401(K) 2012
One option on how Employer pays for their Employees' retirement benefits is to pay as Employees retire. This option may hurt the business cash flow. Another option is for Employer to set up a retirement fund to cover for future Employees' retirement benefits.

There are a lot of ways on setting up the retirement fund and one way is through insurance. Personally, I think this is the cheapest and better option. Employer may insure the life of its employees, pay the premium, and use the insurance plan’s cash proceeds to pay the retirement benefits mandated under RA 7641. To learn more on how to set up your company retirement plan through this method, contact me for more details.

by Mel · 0

Do you know about your Retirement Benefit?


Article 287 of the Labor Code, as amended by Republic Act No. 7641, provides:

Retirement Plan. Credits: s_falkow
"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 and 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.

In the absence of a retirement plan or agreement providing for retirement benefits of employees in the establishment, an employee upon reaching the age of sixty (60) years or more, but not beyond sixty-five (65) years which is hereby declared the compulsory retirement age, who has served at least five (5) years in the said establishment, may retire and 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.

Unless the parties provide for broader inclusions, the term one-half (1/2) month salary shall mean fifteen (15) days plus one-twelfth (1/12) of the 13th month pay and the cash equivalent of not more than five (5) days of service incentive leaves.

Retail, service and agricultural establishments or operations employing not more than ten (10) employees or workers are exempted from the coverage of this provision.

Violation of this provision is hereby declared unlawful and subject to the penal provisions provided under Article 288 of this Code."

In a quick summary, if you, as an employee (in the Philippines),
- has served the organization for at least 5 years
- is between 60 to 65 years old

Then you may avail of your retirement benefit, which is 
- equivalent to at least 1/2 month salary for every year of service
- a fraction of at least six (6) months being considered as one whole year

The law is intended to protect the welfare of the workers and employees.




by Mel · 0