TIFP Employee Benefit Plans 2024 PDF

TRUST INSTITUTE FOUNDATION OF THE PHILIPPINES EMPLOYEE BENEFIT PLANS October 19, 2024...

TRUST INSTITUTE FOUNDATION OF THE PHILIPPINES EMPLOYEE BENEFIT PLANS October 19, 2024 Atty. Rene B. Betita  THIS PRESENTATION IS PROTECTED BY NATIONAL AND INTERNATIONAL COPYRIGHT LAWS COPYRIGHT NOTICE REPRODUCTION AND DISTRIBUTION OF THIS PRESENTATION WITHOUT PERMISSION FROM THE COPYRIGHT OWNER IS PROHIBITED © Atty. Rene B. Betita. All Rights Reserved 1. DEFINITIONS Employee Benefit Plan (EBP) “EBP” is a generic term for a plan which provides for employee benefits, most of which are retirement programs designed to provide cash benefits to eligible and qualified employees upon their retirement or separation from their employer. Retirement Plan Definition A plan established for the 02 This fund is used to provide 01 benefit of employees for retirement and other employed in a common benefits to employees in enterprise. accordance with the retirement plan. 03 The plan provides for a fund 04 The plan provides for a fund which is created out of which is created out of contributions from the contributions from the employer or employees, or employer or employees, or from both. from both. RETIREMENT BENEFIT Retirement — In the absence of any collective bargaining agreement or other applicable agreement concerning terms and conditions of employment which provides for retirement at an older age, an employee may be retired upon reaching the age of sixty (60) years. PD 422 (Lablor Code as amended by RA 7641)  REPUBLIC PLANTERS BANK v. NLRC [G.R. No. 117460. January 6, 1997.] The Bank by invoking the salary structure and criteria for promotion as basis for determining the amount of gratuity has confused the two distinct concepts of gratuity and salary. Gratuity, therefore, is not intended to pay a worker for actual services rendered or for actual performance. It is a money benefit or bounty given to the worker, the purpose of which is to reward employees who have rendered satisfactory service to the company. Salary, on the other hand, is a part of labor standard law based on the actual amount of work rendered or the number of days worked over the period of years. Hence, the Bank’s attempt to apply the salary structure to What IS A determine gratuity would eradicate the very essence of a gratuity award, and make it RETIREMENT partake of the character of a wage or salary given on the basis of actual work or BENEFIT? performance. Such was never the intendment of the law and would run counter to essential social justice.  OPTIONAL (at the option of the COMPULSORY employee) In the absence of a CBA/ Retirement Plan: In the absence of a CBA/ Retirement Plan: 65 with 5 years of service 60-64 with 5 years of service EARLY EXTENDED Yes, if consented by employees in the Depends on the sound discretion of the Retirement Plan or if there is a CBA employer and if so agreed by the employee RETIREMENT AGE RETIREMENT BENEFIT COMPUTATION An employee who is retired pursuant to a bona-fide retirement plan or in accordance with the applicable individual or collective agreement or established employer policy shall be entitled to all the retirement benefits provided therein or to termination pay equivalent to at least one-half month salary for every year of service, whichever is higher, a fraction of at least six (6) months being considered as one whole year. For the purpose of computing retirement pay, "one-half month salary" shall include all of the following: Fifteen (15) days salary based on the latest salary rate; Cash equivalent of five (5) days of service incentive leave; One-twelfth (1/12) of the thirteenth-month pay. (1/12 x 365/12 =.083 x 30.41 = 2.5) “one-half month salary” is equivalent to 22.5 days (Capitol Wireless, Inc. v. Honorable Secretary Ma. Nieves R. Confesor, G. R. No. 117174, November 13, 1996). COLA and profit share shall not be included in the computation of retirement pay. PD 422 (Lablor Code as amended by RA 7641)  ALTERNATIVES RETIREMENT PAG-IBIG FUND AS UNDER CBA A SUBSTITUTE Where both the employer A private employer shall have and the employee the option to treat the coverage contribute to a retirement of the PAG-IBIG FUND as a fund in accordance to the substitute retirement benefit if CBA, the employer’s total such option does not in any contribution shall not be way contravene an existing CBA less that than the total or other employment retirement benefits to which agreement. Only the employer’s the employee would have contribution and its increments been entitled had there shall be considered for been no such retirement compliance. Labor Code. fund. COVERAGE OF RETIREMENT BENEFITS Coverage: ALL Exemptions from employees in the coverage: PRIVATE sector, Government regardless of their Employees Domestic position, helpers/personal designation or service status and Employees of retail, irrespective of the service and method by which agricultural their wages are establishments paid employing not more than 10 employees  “ Some Distinctions Among Types of Retirement Plans AS PROVIDED IN THE LABOR CODE  What the Labor Code Says A reasonable benefit plan may consist of a pension, gratuity, stock bonus or profit-sharing plan maintained by an employer for the benefit of some or all his officials and employees, wherein contributions are made by such employer or officials and employees, or both. It may be contributory or non-contributory on the part of the officials or employees.  “REASONABLE BENEFIT PLAN” GRATUITY PLAN PENSION PLAN A plan established and maintained by an A plan established and maintained by an employer primarily to provide a lump sum employer primarily to provide systematically for payment to his employees, payable at the payment of definitely determinable benefits retirement. to his employees over a period of years, usually for life, after retirement. PROFIT-SHARING PLAN STOCK BONUS PLAN A plan established and maintained by an A plan established and maintained by an employer to provide for the participation in his employer to provide benefits similar to those of a profits by his employees or their beneficiaries. profit sharing plan, except that the contributions It allows the employer each year to determine how by the employer are not necessarily dependent much to contribute to the plan (out of profits or upon the profits and the benefits are otherwise) in cash or employer stock. The plan distributable in stock of the employer company. contains a formula for allocating the annual contribution among the participants. OTHER DISTINCTIONS  As to Administration Self- administered – employer will implement employee plan Trusteed – contributions are deposited with a trustee which may either be a board of trustees created by the company of the trust department of a bank. The trustee receives the contributions to the funds, invests them, accumulates the earnings of such investments, and pays the retirement benefits out of the fund Contributory - both employer and employees contribute to the fund Non- Contributory – only the employer contributes to the fund As to Participation  As to Manner of Benefit Payment Gratuity – benefits are paid in lump sum immediately upon retirement. Pension – benefits are paid out over a number of years, usually during the lifetime of the retiree As to Funding Funded Pay-As-You-Go* Book Reserve* Unfunded Deposit Administration Contract Trust Fund Insurance/Pre Need As to Funding Pay-As-You-Go No fund earmarked Book Reserve Liabilities accrued in books but no fund is set up Assets are identified, called segregated account Benefits expensed at time of separation Payment taken from business operations Not eligible for tax qualification As to Funding Funding is defined as the financing of retirement benefits by setting aside funds for payment of such benefits in advance of the date on which the benefits become payable. Trust Entities shall adopt a single classification (ie., FVPL only) for security holdings of all employee accounts across all asset classes, since these funds fail the SPPI test. (BSP reply to TOAP dated November 22, 2019).  FUNDING Statutory requirement to pay retirement benefit Regardless of where the benefit payments come from Accounting standard to recognize liability Accounting requirement to include in the Financial Statements the liability for retirement benefits accruing during the fiscal year. Pre-Need/Insurance Permanent (cash value) insurance Little flexibility in terms Investment income takes the form of: Part of increase in cash value Dividends, if any May have tax implications for employees  TRUSTEED VS INSURED TRUSTEED INSURED To the Company To the Company, Fund and Tax Benefits (deductibility of premium Employees payments) Governed by BSP Rules and Basic Standards on Trust Governed by Insurance Access to Investments Depends on Risk Profile of Code (conservative rate of Company return) Employer and Employee may Participate Funds can be Transferred to a Risk of Loss of Premium Termination Successor Trustee Payments Benefits forfeited by resigning Resignation of employee Forfeitures employees in favor of the fund may result to return of cash DEPOSIT ADMINISTRATION CONTRACT Fund is set up and held by insurance company Insurance company handles the investment of the fund Only benefit payments from the fund are deductible against the employer’s taxable ncome Retirement benefits are tax exempt if plan is tax-qualified Investment income subject to minimum guarantee, historically lower and not tax exempt TRUST FUND A fund is set up with a trustee who holds and invests the plan assets Employer involved in the investment of the fund Tax advantages to employer, employee and income of the fund, if Plan is tax-qualified 27 28  As to Benefit Payments DEFINED BENEFIT DEFINED CONTRIBUTION Employer contributions are fixed Benefits are defined by a in the plan rules while the formula in the plan rules while benefits are a function of both the contributions necessary to the total contributions made and meet the promised benefits are the investment performance of estimated periodically by an the fund. Benefits are a variable and thus actuary. cannot be qualified in terms of final salary prior to retirement. Defined Benefit = x 31 32 ACTUARIAL VALUATION A mathematical process which determines how much a company must contribute on a regular basis so as to pay for future benefits under a retirement plan program Purpose Funding Accounting Employer tax deductions Other legal requirements Advantages of a Retirement Plan TO THE EMPLOYER Compliance (Statutory, RA No. 7641, Contractual) Incentive (hiring more and better qualified officers and employees) Maintaining officers and employees (high employee morale, company loyalty, increased productivity, reduced hiring and training costs Good corporate image, goodwill Tax deductible contributions 100% for current annual cost 1/10 of contribution for past service liability (for 10 years) Tax exempt income of the Fund Reduced Company’s annual contributions Increase employee benefits at same cost Advantages of a Retirement Plan TO THE EMPLOYEE Tax Free Benefits Retirement benefits 50 years of age and 10 years of service Not previously availed Separation benefits Involuntary; through no fault/beyond employee’scontrol (retrenchment, redundancy, death, disability) Protection of standard of living after retirement Post-employment security; work efficiency and productivity  SPECIAL CHARACTERISTICS RETIREMENT FUND AS A QUALIFIED BUYER The requirement of registration of securities shall not apply to the sale of any security in any of the following transactions: (l) (iv) Pension fund or retirement plan managed by a bank or other persons authorized by the BSP Section 10, Securities Regulations Code  SPECIAL CHARACTERISTICS RETIREMENT FUND AS A PHILIPPINE NATIONAL The term Philippine National shall mean xxx a trustee of funds for pension or other employee retirement or separation benefits, where the Trustee is a Philippine National and at least 60% of the Fund will accrue to the benefit of Philippine nationals -Section 3, Foreign Investments Act of 1991 TAXATION OF RETIREMENT BENEFITS  TAXATION OF RETIREMENT BENEFITS Retirement benefits exempt from all taxes (subject to certain conditions) Retirement benefits exempt from attachment, garnishment, levy or seizure Exceptions: to pay employee’s debt to the plan to pay those arising from employee’s liability imposed in a criminal action A REASONABLE RETIREMENT PLAN REQUISITES Definite written program Permanent and continuing program Coverage: Percentage basis (at least 70% covered; 80% of eligible employees must be covered) Classification basis (limit coverage to employees in a certain classification, provided does not discriminate in favor of officers, shareholders, supervisors or highly compensated employees) TO THE EMPLOYEE Contribution (employer, employees, or both contribution to the fund) Impossibility of diversion Non-discriminatory in contributions or benefits Non-forfeiture of rights TO THE EMPLOYER Forfeitures used to reduce employer’s contributions under the plan Properly funded Retirement fund must be administered by a trust Outline of Basic Plan Provisions BASIC PROVISIONS Effective Date: __________________ Eligibility For Membership Automatic membership for regular and full- time employees of the Company as of the effective date of the Plan Upon appointment as a regular employee Normal Retirement Date The first day of the month coincident with or next following attainment of age sixty (60) 43 BASIC PROVISIONS Death and Disability Benefits Death/permanent and total incapacity or disability certified to the satisfaction of the Board of Trustees Benefit in accordance with the retirement benefit formula as of date of death or disability Separation Benefit For reasons other than dismissal for cause (e.g. retrenchment, redundancy) Termination pay benefit as per Labor Code 44 BASIC PROVISIONS Dismissal For Cause Not entitled to benefit Forfeiture Of Benefit Arising from limitations specified in the Plan Benefits to be retained in the Fund Reduce future contributions of employer to the Fund Non-Diversion No part of the Fund shall be used for or divested to purposes other than the exclusive benefit of 45 the members/beneficiaries BASIC PROVISIONS Contribution Non-contributory, actuarially determined Administration Retirement Committee administers the Plan Funding of Plan and payment of benefits through a trust fund held by the trustee 46 BASIC PROVISIONS Right of Employer to Modify, Suspend or Discontinue the Plan Economic conditions, business necessity No retroactive application as to adversely affect or reduce the benefit accrued in favor of employees on account of service prior to the date of amendment of the Plan No reversion of asset to employer until all liabilities of the Plan have been satisfied 47 BASIC PROVISIONS Termination of Plan Liability of the employer to make contributions shall cease Allocation of assets of the Fund Subject to a provision for expenses of administration or liquidation Payment of employee benefits in a specified order of priority Excess (after liability to employees), if any, reverts to the employer (deferred income taxable to the employer). 48 BASIC PROVISIONS Order of Payment of Benefits to Employees 1. Full or pro-rata to payment of beenfits to employees and beneficiaries who are eligible for: Normal/late retirement, death and disability benefits, but who have not yet received their benefit payments by the date of Plan termination 2. Early retirement benefits as of the date of Plan termination (if any amount remains after 49 No. 1) BASIC PROVISIONS 3. Full or pro-rata to payment of benefits to employees who remain and who may have such benefit interest as the Company may determine on the termination of the Plan (if there is any excess after No. 2). Excess, of any, after all of the above allocations and benefit payments shall revert to the employer, and taxable to the employee as deferred income. In contributory plans, at least all contributions of the employees shall be returned to the extent of their contributions 50 OPTIONAL FEATURES Voluntary Termination Benefit Voluntary resignation Benefit equivalent to a percentage of ½ month’s salary as of the date of resignation Vesting percentage benefit vis-à-vis tenure depends on Employer’s hiring and firing policies, nature of business, etc. 51 OPTIONAL FEATURES Portability Benefit For multi-employer plans Employee transfers from one company to another related company (both participating companies in same Plan) Amount equivalent to accrued retirement benefit of the transferring member shall be transferred from the retirement fund of the former to that of the new company Current employer considers entire credited service of the employee with the former company upon retirement or separation from the current employer. 53 EFFECT OF OTHER LAWS; CBA Benefits due from SSS, State Insurance Fund shall not be deducted from the benefit under the Plan Plan members not entitled to both what existing or future laws or contracts (CBA) require the Company to give if these benefits are analogous to those under the Plan, but shall be entitled only to whichever is the highest among them. 54 THANK YOU October 19, 2024 Atty. Rene B. Betita