Bureau of Internal Revenue(BIR)

I would like to know if requiring employees to contribute to a Defined Contribution is lawful when constructing the plan rules?

Thank you.

Regards,
John

February 21, 2023

Dear Mr. Arthur:

Thank you for your request dated Feb 21, 2023 under Executive Order No. 2 (s. 2016) on Freedom of Information in the Executive Branch, for Requiring Employees to contribute in a Defined Contribution Retirement Scheme.

We received your request on Feb 21, 2023 and will respond on or before Mar 14, 2023 12:12:46 PM, in accordance with the Executive Order's implementing rules and regulations.

Should you have any questions regarding your request, kindly contact me using the reply function on the eFOI portal at https://www.foi.gov.ph/requests/aglzfmVmb2ktcGhyHQsSB0NvbnRlbnQiEEJJUi05MTMwMzIyODEwOTIM, for request with ticket number #BIR-913032281092.

Kindly accomplish the FOI Request Feedback Form at the link: https://bit.ly/BIRFOISurveyForm01.

Thank you.

Respectfully,

FOI Receiving Officer
Public Information and Education Division

March 8, 2023

Dear John Alexander Arthur,

Greetings!

Thank you for your request dated Feb 21, 2023 12:12:46 PM under Executive Order No. 2 (s. 2016) on Freedom of Information in the Executive Branch.

You ask if requiring employees to contribute in a Defined Contribution Retirement Scheme is lawful.

Please be informed that under Section 32(B)(6(a) of the Tax Code, as amended, it is provided that the retirement benefits received by officials and employees of private firms, whether individual or corporate, in accordance with a reasonable private benefit plan maintained by the employer, is exempt from income tax provided, that the retiring official or employee has 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 his retirement: Provided, further, That the benefits granted  shall be availed of by an official or employee only once. 

The term 'reasonable private benefit plan' means a pension, gratuity, stock bonus or profit-sharing plan maintained by an employer for the benefit of some or all of his officials or employees, wherein contributions are made by such employer for the officials or employees, or both. As defined under the law, a retirement benefit may be contributory where the employee  pays a portion of the contribution, which the employer deducts from wages while the remainder is paid by the employer. The law therefore recognizes that a retirement benefit plan may be a contributory plan where employees share in the contributions.

On the question whether or not it is lawful to require the employee to contribute, presumably against his will, we believe that it can be better addressed by the Department of Labor as it is no longer a tax issue.     


Thank you.

Respectfully,
Chief, Legal and Legislative Division 
Decision Maker
FOI Officer