Goodbye tension, hello pension

Second of two parts

In the first part of our discussion, we highlighted the importance of creating robust retirement plans that exceed the minimum requirements set by Philippine retirement laws. As we move into this second part, we focus on the practicalities of implementing these strategic retirement plans, ensuring compliance with regulatory requirements, and maximizing available tax benefits that can significantly impact both employers and employees.

Apart from the registration of the plan with the Bureau of Internal Revenue (BIR) as a “Tax-Qualified Plan,” employers must also take into consideration other compliance requirements such as engaging actuaries for valuation including PAS 19R and funding purposes and tax compliance returns filing and submission based on the plan’s registration with the BIR, communicate benefits clearly to employees, and review and update the plan regularly to keep pace with inflation and workforce changes.

Under the BIR’s revised regulations on private retirement benefit plans, within 30 days from the effectivity of the retirement benefit plan, the employer must apply for the issuance of a certification of qualification for tax exemption of the employee retirement benefit plan with the BIR. Otherwise, a penalty will be imposed on the employer. The BIR requires the submission of certain documents when applying for a Certificate of Qualification for Retirement Benefit Plans and will depend on whether the plan is trusteed or non-trusteed.

In the case of a trusteed Retirement Plan or those whose assets or funds are being held, managed, and administered by entity appointed as trustee by an employer for the benefit of its employees, employers must submit, among others, the Retirement Plan Rules and Regulations with provisions on non-forfeiture and non-diversion rights, the actuarial valuation report (must not be more than three years prior to the date of application), and the trust agreement and current fund amount. The BIR also requires the submission of the retirement plan’s registration details and may request additional documents over the course of its review.

In the case of a non-trusteed Retirement Plan, the documents appear to be more limited; that is, the employer must provide the written program constituting the Plan and the Deposit Administration Contract or Deferred Annuity Contract. The same documentation requirements are applicable to multi-employer plans. A copy should be submitted for each of the participating employers together with the Participating Agreement.

In deciding whether to select between a trusteed or non-trusteed retirement plan, the company must consider the investment earnings, administrative expenses and tax benefits (i.e., tax deductible contributions and tax exemption for investment earnings). The company provides greater control over where the funds are invested in a trusteed plan as compared to a non-trusteed plan, though the latter entails lower expenses.

Pending the employer’s application with the BIR, the retirement benefits received by any qualified retiring employee or investment income received by the Retirement Fund is exempt from income tax and, consequently, from withholding tax pursuant to RA No. 4917, and Section 60(B) of the Tax Code, respectively. Once issued, the Certificate will be valid unless revoked by the BIR. However, should the application of the employer be denied by the BIR, the employer/trust will be directly and solely liable for any deficiency in income taxes.

The BIR’s guidelines underscore the need for timely registration, accurate documentation, and ongoing compliance. Employers must weigh the tradeoffs between control, cost, and administrative complexity when choosing the appropriate plan structure. Trusteed plans offer greater investment oversight, while non-trusteed plans may offer simplicity and lower expenses.

For purposes of tax compliance, trustees of all Retirement Plans are required to file an annual information return on or before April 15 of each year with the Revenue District Office (RDO) having jurisdiction over the employer together with the copy of the issued Certificate of Qualification. The submissions are subject to post audit by the BIR.

The gap between statutory benefits and actual retirement needs is undeniable. RA 4917 provides a legal and tax-efficient way for companies to support employees and secure their future. A written retirement plan isn’t just good practice — it’s a strategic move that benefits both employer and employee. Retirement should be a time of peace, not financial stress. By offering comprehensive retirement benefits to employees, companies can make that dream a reality.

The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.