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Establishment of Retirement Plan

The document outlines the process for establishing a retirement plan for a company. It involves determining the budget for employee retirement benefits, hiring an actuary to calculate annual contribution needs, and working with the actuary and BDO Trust to set up the official retirement plan. The actuary will produce documents like an actuarial valuation report and plan rules/regulations to file for tax exemption from the Bureau of Internal Revenue. Relevant government regulations on retirement and separation benefits are also summarized.

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Violeta Stancu
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357 views3 pages

Establishment of Retirement Plan

The document outlines the process for establishing a retirement plan for a company. It involves determining the budget for employee retirement benefits, hiring an actuary to calculate annual contribution needs, and working with the actuary and BDO Trust to set up the official retirement plan. The actuary will produce documents like an actuarial valuation report and plan rules/regulations to file for tax exemption from the Bureau of Internal Revenue. Relevant government regulations on retirement and separation benefits are also summarized.

Uploaded by

Violeta Stancu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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ESTABLISHMENT OF A RETIREMENT PLAN

A Company-Employer setting up a retirement plan starts by defining how much


employee retirement and involuntary separation benefits would be suitable for the
company. As soon as the said benefit budget is set, an independent actuary is
consulted to determine the regular annual contribution to be made for your retirement
fund.

BDO-Trust and Investments Group will work with the independent actuarial firm
appointed by the Company-Employer, for the establishment of the Retirement Plan
(the “Plan”), with the scope of actuarial services enumerated below:

A. Scope of Required Actuarial Services:

1. General consultation on retirement plans pertaining to the design and


administration including investment and legal/ tax application in relation to
R.A. No. 7641 (Mandatory Retirement Pay Benefit); R.A. No. 4917 (Tax –
Exemption Qualification of the Plan); R.A. 8424 (Tax Exemption of Retirement
Benefit Payments); and Revenue Regulations 1-68 (Private Retirement Benefit
Plan Regulations).

2. Determine the cost of the Plan Benefits, including the past service actuarial
liability, in accordance with generally accepted actuarial cost methods.

3. Prepare and submit the final (a) Actuarial Valuation Report and (b) Employees’
Retirement Plan Rules and Regulations approved by the Company-Employer,
together with the following documents:

a. Actuarial Certification
b. Statement of Actuarial Assumption and Cost Results
c. Statistical Distribution of Eligible Members
d. Outline of Basic Plan Provisions
e. The Retirement Plan Rules and Regulations

B. BIR Filing may be performed by the Actuary or an Appointed BIR Liaison:

Filing the application and necessary documents with the Bureau of Internal
Revenue (BIR) for the Plan’s tax exemption is covered by Republic Act. No. 4917,
now Section 28 (b) (7A) of the Revenue Code. Although BIR approval of the
Plan approved by the Company-Employer and finalized by the Actuary is usually
approved, the release of the tax exemption certificate is still determined by the BIR
(*).

*BDO can refer a BIR Liaison if it’s not part of the Actuarial Service.

C. Actuarial Fees:

Variable, depending on the Actuary and the number of employees covered by the
Retirement Plan.
PERTINENT GOVERNMENT RULES AND REGULATIONS

A. Republic Act 7641 - Mandatory Retirement Pay Benefit

 Minimum retirement benefit of “one-half month salary” per year of service to


employees who have reached age 60 with at least 5 years of service.

“One-half month salary” means the sum of:


 15 days’ final salary
 1 / 12 of 13th month pay
 cash equivalent of 5 days of service incentive leave
 all other benefits that the employer and employee may agree upon that should
be included in the computation of the employee’s retirement pay.

 Retirement pay is exempted from tax if:

 paid from plan approved by the BIR;


 retiring employee is 50 years or more with at least 10 years of service with the
same Company-Employer; and
 retiring employee has not previously availed of the privilege.

B. Statutory Minimum Separation Benefit

Employees are entitled to a minimum severance pay upon dismissal except for
“just cause”. The amount varies with the reason for dismissal as follows:

 Redundancy - One month’s final pay per year of service, with a minimum payment
of one month’s final pay.

 Retrenchment - Half month’s final pay per year of service, with a minimum payment
of one month’s final pay

 Retirement - Higher of: (i) Benefit provided by employer under retirement plan, or
(ii) Benefit in accordance with R.A. 7641

 Disability - Half month’s final pay per year of service, with a minimum payment of
one month’s final pay
LIST OF DOCUMENTARY REQUIREMENTS

A. Obtained from the Company:

 Original Copy of a notarized Secretary’s Certificate or Board Resolution authorizing


the:

 establishment of the retirement plan ;


 appointment of a retirement committee / board of trustees;
 appointment of a trustee bank ; and
 designation of the company’s signatories; and
 names of the incumbent directors and officers of the company.

 Certified True Copy of the Collective Bargaining Agreement (CBA) if unionized;

 Certified True Copy of the Securities and Exchange Commission (SEC) original
registration papers and amendments if any,
 Certificate of Filing,
 Articles of Incorporation, and
 By-Laws,
 General Information Sheet.

 Updated Certificate of Tax-exemption exclusively for the Retirement Fund (can be


obtained from existing Trustee – Fund Manager, if applicable); and

 Check representing initial contribution to the retirement fund.

B. Obtained from the Actuary (all original copies):

 Actuarial Valuation Report;


 Retirement Plan Rules and Regulations (the “Plan Design”); and

 BIR Form 17.60 BIR Information Sheet.


C. Obtained from the Trustee Bank (all original copies):

 Notarized Trust Agreement;


 BDO-Trust Specimen Signature Cards for the Company’s authorized signatories;
and
 Investment Authority and Disclosure Guidelines (IADG).

D. Obtained from the BIR Liaison Appointed by the Company-Employer


 Original or Certified True Copy of the BIR Liaison Proposal signed by the Company-
Employer
 After applying for the BIR tax exemption, a copy of the BIR STAMPED RECEIVED
Application Letter for the record files of the Trustee Bank and Company-Employer.

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