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RETIREMENT LAW REVISITED ATTY. ADA D. ABAD CEAP LEGAL COUNSEL CEAP RETIREMENT FUND CEBU WATERFRONT HOTE

RETIREMENT LAW REVISITED ATTY. ADA D. ABAD CEAP LEGAL COUNSEL CEAP RETIREMENT FUND CEBU WATERFRONT HOTEL 21 SEPTEMBER 2010, 4:00-5:30PM. RETIREMENT DEFINED:. withdrawal from one's position or occupation or from active working life

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RETIREMENT LAW REVISITED ATTY. ADA D. ABAD CEAP LEGAL COUNSEL CEAP RETIREMENT FUND CEBU WATERFRONT HOTE

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  1. RETIREMENT LAW REVISITED ATTY. ADA D. ABAD CEAP LEGAL COUNSEL CEAP RETIREMENT FUND CEBU WATERFRONT HOTEL 21 SEPTEMBER 2010, 4:00-5:30PM CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  2. RETIREMENT DEFINED: • withdrawal from one's position or occupation or from active working life • The period of a person's life during which he/she is no longer working, or the commencement of that period. CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  3. CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  4. Retirement age CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  5. GENERAL RULE: R.A. 7641 • OPTIONAL at 60 years with minimum 5 years of service • MANDATORYat 65 years, no service requirement • EXCEPTION: • Where the company provides for a Retirement Plan with earlier retirement age, then the company’s Retirement Plan will apply CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  6. Retirement benefits CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  7. GENERAL RULE: R.A. 7641 ½ month for every year of service (expanded concept) EXCEPTION: Where the School or company provides for a Retirement Plan with better benefits, then the company’s Retirement Plan will apply CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  8. TWO GOVERNING LAWS ON RETIREMENT BENEFITS: • REPUBLIC ACT NO. 7641, otherwise known as the RETIREMENT PAY LAW enacted on 09 December 1992 • REPUBLIC ACT No. 4917, which amends the National Internal Revenue Code on exemption from taxes of retirement benefits CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  9. COMPANIES WITH A RETIREMENT PLAN BUT LESS BENEFIT COMPANIES WITHOUT RETIREMENT PLAN COMPANIES WITH A RETIREMENT PLAN R.A. 7641 R.A. 7641 R.A. 4917 CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  10. COMPANIES WITHOUT RETIREMENT PLAN RETIREMENT LAW TO APPLY CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  11. COMPANIES WITH A COLLECTIVE BARGAINING AGREEMENT OR RETIREMENT PLAN BUT SAME OR LESS BENEFITS THAN MINIMUM RETIREMENT LAW TO APPLY CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  12. 1. WHO MAY BENEFIT? • ALL EMPLOYEES IN THE PRIVATE COMPANY, REGARDLESS OF POSITION AND CLASSIFICATION. They shall include part-time employees, employees of service and other job contractors and domestic helpers or persons in personal service of another. • 2. WHO MAY NOT BENEFIT? • GOVERNMENT EMPLOYEES • EMPLOYEES OF RETAIL AND AGRICULTURAL ESTABLISHMENTS EMPLOYING TEN OR LESS EMPLOYEES CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  13. 3. PARAMETERS FOR AVAILMENT • MANDATORY AT 65 YEARS OF AGE, NO SERVICE REQUIREMENT • OPTIONAL AT AGE 60, WITH FIVE (5) YEARS SERVICE REQUIREMENT • IF COMPLIED WITH, BENEFITS ARE TAX-EXEMPT. CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  14. 4. HOW MUCH IS THE BENEFIT? • 4.1 FOR THOSE PAID REGULARLY -- ONE-HALF MONTH SALARY COMPUTED AT 22.5 DAYS PER CAPITOL WIRELESS VS. CONFESOR CASE. (REITERATED IN STA. CATALINA SCHOOL VS. NLRC 2003 CASE) • Components of one-half month salary=   • 15 days x latest salary per day) • + 5 days leave x latest salary per day) • + 1/12 of 13th month pay • + All other benefits that the employer and employee may agree upon that should be included in the computation of the employee’s retirement pay. CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  15. NOTE: The fifteen (15) days salary of the employee is that based on his latest salary rate. Except: (a) cost of living allowances (b) profit-sharing payments (c) other monetary benefits which are not considered as part of or integrated into the regular salary of the employees. CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  16. 4.2 FOR THOSE PAID BY THE RESULTS AND DO NOT HAVE FIXED MONTHLY RATE – The basis for determination of the salary for fifteen days shall be their average daily salary (ADS). The ADS is the average salary for the last twelve (12) months reckoned from the date of their retirement, divided by the number of actual working days in that particular period. (Source: Section 5.2 and 5.3 of the Rules Implementing the New Retirement Law) CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  17. 5. IS THE RETIREMENT PAY UNDER RA 7641 TAX-EXEMPT? • YES, any retiree who satisfies the requirements of R.A. No. 7641 (retirement under a CBA or other applicable employment, and service for at least five years) is entitled to the tax exemption, • even if he is a member of a reasonable private benefit plan established by his employer and approved by the BIR, • PROVIDED that the retirement benefit he receives from the Plan is equal to or less than the minimum requirement benefit provided by R.A. No. 7641 CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  18. REQUIREMENTS FOR TAX • EXEMPTION UNDER RA 7641 • There is no collective bargaining agreement or other applicable employment contract providing for retirement benefits for an employee; OR there is a collective bargaining agreement or other applicable employment contract providing for retirement benefits for an employee, but it is below the requirements set for by law. • Employees reached the age of 60 years or more, but not beyond 65 years • Employees rendered at least 5 years in service CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  19. CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  20. COMPANIES WITH A COLLECTIVE BARGAINING AGREEMENT OR RETIREMENT PLAN RETIREMENT PLAN TO APPLY TAX-EXEMPT SUBJECT TO CONDITIONS UNDER RA 4917 CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  21. 1. WHO MAY BENEFIT? • AVAILMENT WILL INDUBITABLY DEPEND UPON THE PARAMETERS GIVEN BY THE RETIREMENT PLAN ITSELF CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  22. CEAP RETIREMENT PLAN, ARTICLE 10. • SEC. 1: THE NORMAL RETIREMENT DATE UNDER CEAP RETIREMENT PLAN IS AGE 60 • LAST DAY OF THE SEMESTER DURING WHICH HE ATTAINS AGE 60 • IF BIRTHDAY IS OUTSIDE OF A SEMESTER (SUMMER BREAK OR SEM BREAK OR CHRISTMAS BREAK), THEN ACTUAL BIRTHDAY. CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  23. SEC. 2: OPTIONAL OR EARLY RETIREMENT DATE • LAST DAY OF THE SEMESTER AFTER HE HAS RENDERED TWENTY (20) YEARS OF CONTINUOUS SERVICE; OR • IF THE LAST DAY OF THE SEMESTER, IF THE 20TH YEAR OF SERVICE FALLS OUTSIDE OF THE SEMESTER. CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  24. SEC. 3: SEPARATION PRIOR TO RETIREMENT • EMPLOYEE RESIGNS • EMPLOYEE IS TERMINATED FOR REASONS OTHER THAN DISMISSAL FOR CAUSE ATTRIBUTABLE TO THE FAULT OF MEMBER • (EXAMPLE: RETRENCHMENT, REDUNDANCY, INSTALLATION OF LABOR SAVING DEVICES) • PROVIDEDAT LEAST TEN (10) YEARS OF CONTINUOUS SERVICE CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  25. WHAT BENEFITS ARE THEY ENTITLED TO? • RETURN OF TOTAL CONTRIBUTIONS OF EMPLOYEE • INCOME ACCRUED FROM HIS CONTRIBUTIONS UNDER THE TRUST FUND • SPECIFIED PROPORTION OF TOTAL CONTRIBUTION OF THE EMPLOYER SCHOOL CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  26. 2. PARAMETERS FOR AVAILMENT OF TAX EXEMPTION UNDER RA 4917 • IF THE CBA OR RETIREMENT PLAN GIVES A LOWER OPTIONAL RETIREMENT AGE, PLUS SERVICE REQUIREMENT, THEN SUCH WILL APPLY AS IT IS MORE FAVORABLE TO THE EMPLOYEE. • IF COMPLIED WITH, BENEFITS ARE TAX-EXEMPT SUBJECT TO THE FOLLOWING CONDITIONS UNDER REP. ACT 4917 CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  27. 3. REQUIREMENTS FOR TAX EXEMPTION UNDER REPUBLIC • ACT NO. 4917 • The benefit plan must be approved by the BIR • The retiring official or employee must have been in the service of the same employer for at least ten (10) years • Not less than fifty (50) years of age at the time of retirement • The retiring official or employee shall not have previously availed of the privilege under the retirement benefit plan of the same or another employer CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  28. 4. HOW MUCH IS THE BENEFIT? • IF THE RETIREMENT PLAN GIVES BETTER RETIREMENT BENEFITS THAN THE MINIMUM PROVIDED BY LAW (1/2 MONTH EXPANDED), THEN SUCH WILL APPLY AS IT IS MORE FAVORABLE TO THE EMPLOYEE CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  29. CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  30. RECONCILIATION OF TAX EXEMPTION UNDER RA 7641 AND RA 4917 PER BIR OPINION DA-151-2004, March 31, 2004. Commissioner Jose Mario BuÑag) CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  31. SITUATION ONE: • COMPANY DOES NOT HAVE ANY RETIREMENT PLAN • EMPLOYEE OPTS FOR EARLY RETIREMENT UNDER REP. ACT NO. 7641, 60 YEARS PLUS AT LEAST 5 YEARS SERVICE EFFECT:RETIREMENT BENEFIT IS TAX-EXEMPT BY EXPRESS PROVISION OF LAW. CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  32. SITUATION TWO: • EMPLOYEE WILL RETIRE UNDER COMPANY RETIREMENT PLAN • COMPANY RETIREMENT PLAN IS EQUAL TO OR LESS THAN THAT PROVIDED BY REP. ACT NO. 7641 EFFECT:RETIREMENT BENEFIT IS TAX-EXEMPT REGARDLESSOF WHETHER THE COMPANY RETIREMENT PLAN IS REGISTERED WITH BIR OR NOT. CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  33. SITUATION THREE: • EMPLOYEE WILL RETIRE UNDER COMPANY RETIREMENT PLAN • COMPANY RETIREMENT PLAN BENEFIT IS MORE THAN THAT PROVIDED BY REP. ACT NO. 7641 EFFECT:RETIREMENT BENEFIT WILL BE TAX-EXEMPT PROVIDED THAT THE REQUIREMENTS UNDER REPUBLIC ACT NO. 4917 ARE COMPLIED WITH CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  34. REQUIREMENTS FOR TAX EXEMPTION UNDER REP. ACT NO. 4917 • COMPANY RETIREMENT PLAN IS REGISTERED WITH THE BIR • COMPANY RETIREMENT PLAN GIVES BENEFIT WHICH IS BETTER THAN THAT PROVIDED BY REP. ACT NO. 7641 • EMPLOYEE MUST BE AT LEAST FIFTY (50) YEARS OLD AND MUST HAVE SERVED THE COMPANY FOR AT LEAST TEN (10) YEARS IN ORDER THAT HIS RETIREMENT BENEFITS MAY BE TAX EXEMPT. CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  35. JUSTIFICATION This is but fair since it is clear that the retirement benefit comes from the BIR approved voluntary plan UNDER REPUBLIC ACT 4917 and not from the requirements of R.A. No. 7641. CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  36. SITUATION FOUR: • EMPLOYEE WILL RETIRE UNDER COMPANY RETIREMENT PLAN • COMPANY RETIREMENT PLAN IS NOT REGISTERED WITH THE BIR OR DOES NOT COMPLY WITH 50-10 REQUIREMT OF RA 4917 EFFECT:TAX TREATMENT OF THE RETIREMENT BENEFIT SHALL BE GOVERNED UNDER REPUBLIC ACT NO. 7641. IF NOT FALLING UNDER EITHER, NO TAX EXEMPTION CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  37. CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  38. RECAPITULATION R.A. NO. 7641 DOES NOT APPLY WHEN THE PRIVATE RETIREMENT PLAN GRANTS TO THE RETIRING EMPLOYEE MORE THAN WHAT THE LAW GIVES.  CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  39. As the Supreme Court stated in the case of Oxales vs. United Laboratories, Inc., G.R. No. 152991, July 21, 2008: • R.A. No. 7641, otherwise known as “The Retirement Pay Law,” only applies in a situation where • there is no collective bargaining agreement or other applicable employment contract providing for retirement benefits for an employee; OR • (2) there is a collective bargaining agreement or other applicable employment contract providing for retirement benefits for an employee, but it is below the requirements set for by law. CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  40. The reason for the first situation is to prevent the absurd situation where an employee, who is otherwise deserving, is denied retirement benefits by the nefarious scheme of employers in not providing for retirement benefits for their employees.  The reason for the second situation is expressed in the latin maxim pactaprivatajuripublicoderogare non possunt.  Private contracts cannot derogate from the public law.  Angkasunduangpribado ay hindimakasisirasabataspubliko. CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  41. FIVE REASONS SUPPORT THIS CONCLUSION CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  42. FIRST, A PLAIN READING OF THE RETIREMENT PAY LAW. Article 287 of the Labor Code: xxx 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. CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  43. SECOND, THE LEGISLATIVE HISTORY OF THE RETIREMENT PAY LAW. It may be recalled that R.A. No. 7641 traces back its history in the case of Llora Motors, Inc. v. Drilon.   In this case, the Court held that the then Article 287 of the Labor Code and its Implementing Rulesmay not be the source of an employee’s entitlement to retirement pay absent the presence of a collective bargaining agreement or voluntary company policy that provides for retirement benefits for the employee. CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  44. THIRD, THE LEGISLATIVE INTENT OF THE RETIREMENT PAY LAW.   A reading of the explanatory note of Representative Alberto S. Veloso would show why Congress sought to pass the Retirement Pay Law:  many employers refused or neglected to adopt a retirement plan for their employees because of the absence of any legal compulsion for them to do so. CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  45. FOURTH, THE TITLE OF THE RETIREMENT PAY LAW. The complete title of R.A. No. 7641 is “An Act Amending Article 287 of Presidential Decree No. 442, As Amended, Otherwise Known as the Labor Code of the Philippines, BY PROVIDING FOR RETIREMENT PAY TO QUALIFIED PRIVATE SECTOR IN THE ABSENCE OF ANY RETIREMENT PLAN IN THE ESTABLISHMENT.” CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  46. Res ipsa loquitur.   The thing speaks for itself. Isang bagay na nangungusap na sa kanyang sarili. CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  47. FIFTH, JURISPRUDENCE. In Oro Enterprises, Inc. v. National Labor Relations Commission, the Court held that R.A. No. 7641 “is undoubtedly a social legislation.  The law has been enacted as a labor protection measure and as a curative statute that – absent a retirement plan devised by, an agreement with, or a voluntary grant from, an employer – can respond, in part at least, to the financial well-being of workers during their twilight years soon following their life of labor.” CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  48. CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  49. SECTION 60(B) OF THE NIRC GOVERNS EXEMPTION FROM THE INCOME TAX OF THE EARNINGS DERIVED FROM INVESTMENTS OF THE EMPLOYEES’ RETIREMENT FUND. CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

  50. GENERAL RULE: INCOME OF THE TRUST FUND FROM ITS INVESTMENTS IS EXEMPT FROM INCOME TAX EXCEPTION: Interest income and/or yield from the bank deposits and deposit substitutes of the trust fund which is subject to the 20% final withholding tax. (Secs. 24 [B] and 60 [A])Source: Hector De Leon, National Internal Revenue Code Annotated, 2003 CEAP RETIREMENT FUND LECTURE OF ATTY. ADA ABAD 092110

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