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Steps to Make your Retirement Plan a Tax-Qualified Plan

Companies wishing to take advantage of the tax privileges that come with a formal retirement plan must first set up the plan and then file it with the BIR for tax exemption.

The following steps describe the process of creating a retirement plan and securing a tax qualification with this plan:

Design the basic provisions of the retirement plan.
In this step, the company must decide the retirement benefits to be paid and the corresponding eligibility requirements in terms of age and service years. If the company is uncertain at this point as to what benefits to provide, it may consider simply providing the minimum benefit under Republic Act (RA) 7641. This way, the company allows itself the future option of increasing the minimum benefit, should it wish to do so, while already availing of the tax benefits of having a formal retirement plan.

Draft the Retirement Plan Rules and Regulations incorporating final provisions.
These Plan Rules will consist of about 9–10 pages because they will also include a number of standard provisions required by the Bureau of Internal Revenue (BIR).

Perform an actuarial valuation.
The actuarial valuation calculates the recommended contributions to support the benefits defined in the above plan rules. The output from this step is therefore the actuarial report, which is one of the documentary requirements filed with the retirement plan.

Prepare all of the documents required for filing and then submit the same to the BIR.
After processing, the BIR issues an approval letter for the retirement plan.

ABOUT THE AUTHOR

Raymund Zalamea

Raymund has over 20 years of experience in retirement consulting, entrepreneurship and marketing. He manages both the actuarial and the benefits administration services for Zalamea.

Raymund has also been successful in launching an online employee portal that provides seamless processing of payroll, timekeeping, retirement savings and loans.

34 thoughts on “Steps to Make your Retirement Plan a Tax-Qualified Plan

  1. do we need to prepare an application letter to the BIR for registration of our retirement plan? or we just submit BIR form 17.60 and all its attachments? if we need an application letter, should it be addressed to the Commissioner? or to our RDO?

    1. Hi Raul,

      Thank you for your query. Yes, the application letter is always necessary when applying for a tax exemption of the retirement plan. The application letter should be addressed to the Commissioner and submitted to the BIR Head Office in Quezon City.

        1. It’s on a case to case basis depending on how soon the BIR will release the tax approval. The approval can take anywhere from 1 – 5 years.

          1. Hi! What happens to the premiums paid for retirment purposes while the application for tax approval with BIR Iis pending.

          2. Premiums or contributions to the retirement fund? If it’s the latter, it’s treated as a tax deductible expense of the company.

  2. I will be 60 on jan. 3, 2017. And need to finish the chool year as a teacher until april. Will i be exempted for my tax after my 60th birthday?

    1. Yes, if the following conditions are met upon separation from the school:
      1. the school has a retirement plan and registered with the BIR,
      2. you will have at least 10 years of service upon separation,
      3. the benefits paid to you will come from the tax exempt retirement trust fund

      1. Hello! So meaning to say, aside from the age and length of service requirement, a tax exempt retirement trust fund is one of the requirements to exempt the benefits received from tax? We just want to confirm if a trust fund is really required. Thank you so much in advance!

  3. Our company has only 6 employees but we want to set up a retirement plan based on the minimim provisions of the law. Do we still need a formal actuarial study for this?

  4. Is the Retirement Plan included in the CBA of Private Companies considered already as Tax Qualified Plan? or we need to have the same approval from BIR?

  5. Hi,

    Would just like to know the validity of retirement fund bir tax exemption.

    For example: we have aprroved 2018 bir ruling for our retirement fund.then under rmo 20-2013 this will be valid for 3yrs from the date specified in the ruling,(it means we are valid till 2021) unless, sooner revoked or cancelled.

    However, i saw some article that says.

    All existing tax exemption ruling certificates issued on or after June 30, 2012 shall remain valid and effective, unless revoked for valid grounds. They are “no” longer subject to renewal or revalidation, thereby superseding the three-year validity rule of the previous RMO.

    Thanks

    1. The BIR tax exemption on your retirement plan doesn’t have a validity. If you refer to the 4th to the last paragraph of the tax exemption letter, it mentioned that you’ll only have to re-file if there are amendments to the retirement plan.

      In some cases however, your trustee will request an updated tax exemption letter.

    2. The BIR tax exemption on your retirement plan doesn’t have a validity. If you refer to the 4th to the last paragraph of the tax exemption letter, it mentioned that you’ll only have to re-file if there are amendments to the retirement plan.

      In some cases however, your trustee will request an updated tax exemption letter.

    1. 1. actuarial valuation and plan rules – c/o actuarial firm
      2. appointment of trustee – board resolution and trust agreement
      3. initial contribution to the retirement fund – recommended amount is based on the actuarial valuation
      4. BIR form 2303 / TIN of the retirement fund – c/o the trustee
      5. BIR form 17.60 – c/o actuarial firm

    2. 1. actuarial valuation and plan rules – c/o actuarial firm
      2. appointment of trustee – board resolution and trust agreement
      3. initial contribution to the retirement fund – recommended amount is based on the actuarial valuation
      4. BIR form 2303 / TIN of the retirement fund – c/o the trustee
      5. BIR form 17.60 – c/o actuarial firm

  6. Hello! Does it have forms or format if submitted to BIR? Should it be to the respective RDO of the company or to Head office. Thank you.

    1. all application for tax exemption will have to be submitted and processed in the BIR head office in Quezon City.

    2. all application for tax exemption will have to be submitted and processed in the BIR head office in Quezon City.

  7. Hi Zalamea,

    Actuarial valuation and fund administration are two functions you can do for the client. But what if the client availed a diff company for the valuation, can they still hire you for the retirement plan fund administration? Thanks!

  8. Hi. I just saw this. What would happen during the pendency of the company’s application with the BIR of its retirement plan, the company closes its operations? Should the company notify the BIR of its withdrawal of its application? thanx.

  9. Hello. Please enlighten me on this… One of the requirements for the tax exemption is the TIN of the Retirement Plan meaning this is different from that of the employer? What if the Trustees are composed of appointed/selected employees of the company and not a 3rd party Trust company? Thank you in advance.

  10. does it need to wait for the bir approval before contribtuion to the retirement be qualified as deduction to company income?

    1. Hi Khendie. Usually the contributions are already tax-deductible upon receipt of the BIR documents stamped received. However, it will be best to consult your Trustee since the decision on whether to approve the tax-deductibility of the contributions prior to receiving the tax approval letter is up to them.

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