Department of Labor and Employment(DOLE)

Requesting please for an Opinion confirming that a private corporation is not required by current labor laws, rules or regulations to set-up a Private Retirement Plan and consequently secure an actuarial report for purposes of computing the retirement benefits to comply with the retirement obligations of the company to its employees

We most respectfully submit that the law has already provided for a default rule on the computation of retirement benefits of employees in the private sector. R.A. No. 7641, otherwise known as the New Retirement Law amended Article 287 of the Labor Code of the Philippines (PD No. 442) and provides for the rules on retirement benefits of employees. Republic Act No. 7641 can have an optional or compulsory retirement. a) Optional Retirement. — In the absence of a retirement plan or other applicable agreement providing for retirement benefits of employees in an establishment, an employee may retire upon reaching the age of sixty (60) years or more if he has served for at least five (5) years in said establishment. b) Compulsory Retirement. — Where there is no such plan or agreement referred to in the immediately preceding sub-section, an employee shall be retired upon reaching the age of sixty-five (65) years. A covered employee who retires pursuant to RA 7641 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. The law is explicit that “one-half month salary shall mean fifteen (15) days plus one-twelfth (1/12) of the 13th month pay and the cash equivalent of not more than five (5) days service incentive leaves” unless the parties provide for broader inclusions. Evidently, the law expanded the concept of “one-half month salary” from the usual one-month salary divided by two. Qualified workers shall be entitled to the retirement benefit under RA 7641 in the absence of any individual or collective agreement, company policy or practice. In case there is such an agreement, policy or practice providing retirement benefit which is equal or superior to that which is provided in the Act, said agreement, policy or practice will prevail. Thus, a Retirement Plan and consequently an actuarial report that supports said Retirement Plan is only optional and not mandatory if the employer intends to provide retirement benefits that are more than what is required by law to its employees.