RESEARCHES ON RETIREMENT POLICY
VMC Proposed Retirement Policy Labor Code and Retirement Pay Law (R.A. 7641)
Scope
Organic VMC employees who meet the
eligibility criteria for the applicable
retirement category.
Forms of Retirement
Normal Retirement
Early Retirement/Voluntary Resignation
VMC will set aside periodically a certain
amount as contribution to the retirement
fund for all organic and regular employees
who are qualified under the retirement
plan.
An employee who availed the early
retirement cannot be re-hired.
B. Normal Retirement
1. The official compulsory retirement age in
VMC is 60 years old. Employees who reach
the age of 60 OR have served at least
thirty (30) years of continuous service
are eligible for normal retirement benefit.
2. The VMC Retirement Committee reviews
eligibility of upcoming retirees annually, and
forwards decisions to HROD for
implementation.
C. Early Retirement/Voluntary Resignation
1. Employees who are at least fifty (50) years
old and have served at least ten (10) years
of continuous service are eligible for early
retirement. The management or the employee
has the right to exercise this option subject to
the criteria of this policy.
2. Employees who wish to avail of the early
retirement benefit need to submit an
application to HROD, duly endorsed by his
Department/Division/ Area manager.
3. The Retirement Committee is responsible for
Anti-Age Discrimination in Employment Act
Art. 302 of the renumbered Labor Code, implements
R.A. No. 7641
Any employee may be retired upon reaching the
retirement age established in the CBA or other
applicable employment contract.
Employees retirement benefits under any CBA and
other agreements shall NOT be less than those
provided in the Labor Code.
If there is no retirement plan or agreement:
an employee may be retired upon
reaching the age of 60 years (optional) or
more but not beyond 65 years old
(mandatory)
he/she has served at least five years in
the establishment
entitled to retirement pay equivalent to at
least one half (1/2) month salary for
every year of service.
The DOLE specified that the term one-half month
salary should include ALL of the following:
15 days salary based on the latest salary rate;
cash equivalent of 5 days service incentive
leave;
1/12 of the thirteenth month pay; and
all other benefits that the employer and
employee may agree upon to be included.
Implementing Rules and Regulations
Retirement under CBA/contract
Any employee may retire or be retired by his
employer upon reaching the retirement age
established in the collective bargaining
agreement or other applicable employment
contract or retirement plan subject to the
provisions of Section 5 (Retirement benefits) of
the LC on the payment of retirement benefits.
Optional retirement In the absence of a
retirement plan or other applicable agreement
(R.A. 10911)
Who are covered?
All employers, labor contractors or subcontractors,
labor organizations, and publishers.
What are the prohibited acts?
Employer
- Forcibly lay off an employee or worker because of old
age; or
- Impose early retirement on the basis of such
employees or workers age.
Are there exceptions to the prohibition on age
limitation?
Bona fide employee retirement or a voluntary early
retirement plan
- The intent is to observe the terms of a bona fide
employee retirement or a voluntary early retirement
plan consistent with the purpose of this Act: Provided,
That such retirement or voluntary retirement plan is in
accordance with the Labor Code, as amended, and other
related laws
The action is duly certified by the Secretary of Labor and
Employment
What are the penalties?
At the discretion of the court
- Fine of P50,000.00 but not more than P500,000.00
- Imprisonment of not less than 3 months but not more
than 2 years
- If the offense is committed by a corporation, trust,
firm, partnership or association or other entity, the
penalty shall be imposed upon the guilty officer or
officers of such corporation, trust, firm, partnership or
association or entity.
BIR Regulations
A retirement pay shall not constitute compensation
subject to withholding tax if the retirement benefits
received by employees of private firms under a
reasonable private benefit plan comply with the
following requirements:
(i) The benefit plan must be approved by the Bureau
of Internal Revenue;
(ii) The retiring employee must have been in the
service of the same employer for at least ten (10)
years and is not less than fifty (50) years of age at
the time of retirement; and
(iii) The retiring employee shall not have previously
availed of the privilege (of withholding tax
exemption) under the retirement benefit plan of the
same or another employer.
Republic Act No. 4917
An Act Providing That Retirement Benefits Of
Employees Of Private Firms Shall Not Be Subject To
Attachment, Levy, Execution, Or Any Tax Whatsoever
It is now embodied in Section 32(B)(6)(a) of the
Tax Code.
It extends twin preferential treatments to retirement
benefits accruing from a reasonable retirement plan,
namely:
(1) exemption from imposition of all taxes; and
(2) not subject to attachment, garnishment, levy
or seizure by or under any legal or equitable
process whatsoever.
In order to enjoy said treatments, at the time of his
retirement, the retiring employee shall have been
employed by the same employer for at least ten
(10) years and is not less than fifty (50) years of
age.
In implementing the said law, the Bureau of Internal
Revenue prescribes the following requisites to tag a
retirement benefit plan as reasonable:
a) There must be a definite written program setting
forth all provisions essential for qualifications;
 rendering a final decision on the application providing for retirement benefits of employees in
for early retirement benefit. an establishment, an employee may retire upon
reaching the age of sixty (60) years or more if he
One month basic salary has served for at least five (5) years in said
The regular current basic salary of the establishment.
employee to be the basis for the benefit Compulsory retirement- when there is no such
computation. plan or agreement referred to in the immediately
preceding sub-section, an employee shall be
Monthly rate = one month salary retired upon reaching the age of sixty-five (65)
Daily rate = rate/day x 26 days years.
Service requirement the minimum length of
service in an establishment or with an employer
of at least five (5) years required for entitlement
to retirement pay shall include authorized
absences and vacations, regular holidays and
mandatory fulfillment of a military or civic duty.
Sec. 6. Exemption from Tax the retirement pay
provided in the Act may be exempted from tax if the
requirements set by the BIR under sec. 2 (b) item (1) of
Revenue Regulations No. 12-86 dated August 1, 1986
are met, to wit:
Pensions, retirement and separation pay pensions,
retirement and separation pay constitute compensation
subject to withholding, except the following:
a. retirement benefits received by officials and
employees of private firms under a reasonable
private benefit plan maintained by the
employer, if the following requirements are
met:
i. the benefit plan must be approved by the
BIR;
ii. the retiring official or employee must
have been in the service of the same
employer for at least ten (10) years
and is not less than fifty (50) years of
age at the time of retirement; and
iii. the retiring official or employee shall not
have previously availed of the privilege
under the retirement benefit plan of the
same or another employee.
b) It must be permanent and continuing program
unless sooner terminated by virtue of a valid
business reason;
c) It must cover at least 70% of all officials and
employees;
d) The employer, officials and employees, or both,
shall contribute to a trust fund for the purpose of
distributing the corpus and income of the fund in
accordance with the plan;
e) The corpus or income of the trust fund must not be
diverted and shall be used exclusively for the benefit
of the said officials or employees;
f) The contributions or benefits in the plan shall be
non-discriminatory to favor officials or employees
who are officers, shareholders, supervisors, or highly
compensated;
g) It must provide for non-forfeitable rights to
benefits accrued and to the amounts credited to an
account of an official and employee at the time of
discontinuance or termination of plan.
h) Any forfeited amounts must not be applied to
increase the benefits any employee would otherwise
receive under the plan but must be used as soon as
possible to reduce the employers contributions
under the plan.
Under BIR Revenue Regulation No. 1-83 (1982 s.
1), private companies must submit to the Bureau of
Internal Revenue a copy of the written retirement
plan program plus a statement of actuarial
assumption or valuation duly certified by an
independent consulting actuary who must be a
Fellow of the Actuarial Society of the Philippines,
before availing of the tax privileges afforded to
pension plans.
Further, the Bureau of Internal Revenue (BIR)
required that the retirement fund shall be
administered by a trust. There are no specific
limitations with respect to investments of the fund
provided they are permitted by the trust agreement.
In fact, the Section 60B of the Tax Reform Act
(1997) specifically states that income derived from
employees trust which forms part of a pension plan
is exempted from income tax. However, the Bureau
of Internal Revenue (BIR Regulations No. 01-68
1968, s. 5) mandated that the exemption of the
 trust income may be denied if the trust:
(a) Lends any part of its income or corpus without
adequate security and a reasonable rate of interest;
(b) Pays any compensation in excess of a reasonable
allowance for salaries or other compensation for
personal services actually rendered;
(c) Makes any part of its services available on a
preferential basis;
(d) Makes any substantial purchase of securities or
any other property for more than adequate
consideration in money or moneys worth;
(e) Sells any substantial part of its securities or other
property, for less than an adequate consideration in
money or moneys worth; and
(f) Engages in any other transaction which results in
a substantial diversion of its income or corpus.

BIR Ruling No. ERP-267-07 dated Sept. 21,

2007 declared that a certain Retirement Plan,
being a reasonable retirement trust, is exempt,
among others, from the 20 percent and 7.5-
percent final taxes on the interest income
derived from local bank deposits and
foreign currency deposits, respectively, as
imposed under Section 27 (D)(1) of the Tax
Code.

Last June 27, 2013, the BIR issued BIR Ruling

No. 234-13 revalidating that the said
retirement plan is exempt from final taxes on
interest income. This time, however, the BIR
observed that the retirement plan provides that
the normal retirement date of an employee-
member shall be the first day of the month
coincident with or next following his 60th
birthday provided he has served the company
for at least five years of credited service.

The BIR clarified that in order for the

retirement benefits to be received by the
qualified employee-member may be granted tax
exemption, the age and length of service
requirements set forth under Section 32
(B)(6)(a) of the Tax Code must be met, such
 that: (1) The official or employee is at least 50
years old at the time of retirement; (2) The
official or employee had been in the service of
the same private firm for at least 10 years.

Based on this recent 2013 issuance, it appears

that the age and length of service requirements
imposed under the Tax Code are deemed by the
BIR as minimum requirements for retirement
benefits to qualify for income tax exemption. On
the other hand, a retirement plan may provide
for a retirement date more than the minimum
requirement by the Tax Code. In such case, the
employee must comply not only with the
minimum requirements provided in the Tax
Code but also with the higher retirement date
set forth in the retirement plan to avail of the
income tax exemption. (BIR Ruling No. 52-
2000 dated Oct. 30, 2000)

In view of the foregoing, it is prudent for

employer (VMC) to review its retirement plan
and ensure that it comply with the minimum
requirements for retirement benefits for
employees to be entitled to income tax
exemption granted by the Tax Code.