House Bill 9343 with the title, “An Act Expanding the Capital Market by Developing a Robust Institutional Investor Base, Strengthening the Regulatory Environment, and Promoting Financial Literacy, has been passed last June 2, 2021 by the House of Representatives which automatically elevates the bill to the Senate. Although the words Pension or Retirement are not in the title of the bill, it will change the current ways of doing Corporate Retirement Plans. Please see the highlights of the bill below.
- Portable Pension Benefit. Each employee will have a unique account called the Employee Pension and Retirement Income account (EPRI Account) based on his National ID#. If the employee resigns with his current employer and joins another employer, the latest employer simply continues the remittance of contribution for this employee. In essence, the employee is able to receive all the contributions made through his working lifetime unless some of the amount is forfeited due to the early termination penalties set in the bill.
- Mandatory Funding. Both Employer and Employee will contribute to the EPRI Account. Initial Employer and Employee Contributions is set at 4.0% and 1.0%, respectively, of the basic pay. The employer contribution is required while the employee only contributes when he is an above minimum wage earner. The contribution rates are subject to review every 3 years by the Insurance Commission and shall not exceed 5% of the basic pay or an annual maximum amount of PHP 160,000 adjusted for inflation every 3 years.
- Transition. There will be no minimum retirement benefit as Republic Act 7641 will be repealed. As a consequence, new hires will automatically be under the scheme of HB 9343. Current employees at the effective date of the bill will have 1 year to elect whether to stay under the company’s existing tax qualified retirement plan or Republic Act 7641 or move to the scheme under the bill.
- Employees are at the forefront. Unlike the current steps when a company is setting up a tax qualified retirement plan, the employee will be the one to choose the Investment Manager and provide instructions with regards to the available Investment Products. The bill emphasizes financial literacy for the Employee to be able to hugely benefit from this bill.
Next Steps for the Employer
- Assess current retirement benefit strategy. The bill should not deter employers from setting up or improving their current retirement benefit if this is already part of the company’s objectives. Instead, companies can choose to align the benefit as close to the structure of the bill which is of Defined Contribution type.
- Stay Informed. We will continue to provide newsletters for any developments in HB 9343.
You may view the full text of the approved HB 9343 here. Feel free to reach out with us if you would like to have a further discussion on the bill and how it will affect your plans on setting up or improving your retirement benefits.