Steps in Setting up a Retirement Plan

Retirement plans are an important consideration for businesses in the Philippines. These plans provide financial security and stability for employees during their golden years, allowing them to retire comfortably after years of hard work. If you are considering setting up a retirement plan for your business, here are the steps you need to take:

  1. Plan Design: One of the first steps in setting up a retirement plan is to determine whether you want to go with a defined benefit or defined contribution plan. A defined benefit plan guarantees a certain level of benefits to employees upon retirement, while a defined contribution plan is based on the contributions made by the employer. Additionally, you may consider add ons such as employee contributions, employer matching, and vesting.
  2. Review Legal and Regulatory Requirements: It is essential that you familiarize yourself with the laws pertaining to retirement in the Philippines, such as Republic Act No. 7641 and Republic Act No. 4917. These laws set out the requirements for setting up and maintaining a retirement plan, and it is important to ensure that your plan is compliant with them.
  3. Establish Plan Document: Once you have a clear understanding of the legal and regulatory requirements, you can move on to creating the plan document. This is the legal document that outlines the details of the plan, including the plan’s name, purpose, and the rights and responsibilities of the employer, employees, trustee, retirement committee, plan administrator, etc.
  4. Request for a Funding Actuarial Valuation: Determining how much money will be required to fund the plan, and how the assets will be invested is crucial for the long-term success of the plan. A funding valuation will give you an estimate of the amount of money you will need to contribute to the plan in order to meet your obligations to employees.
  5. Appoint the Trustee and Plan Administrator: Once you have established the plan document and determined the funding requirements, you can choose an appropriate trustee and plan administrator to manage and maintain the plan. A trustee is responsible for holding and investing the assets of the plan, while the plan administrator is responsible for managing the day-to-day operations of the plan.
  6. Apply for Tax Exemption: To take advantage of tax benefits, it is necessary to submit the plan documents to the Bureau of Internal Revenue and apply for tax exemptions for the plan.
  7. Employee Communication: Once the plan is established and the legal and regulatory requirements are met, it’s time to go live with the plan and provide training for the employee portal if any. Ensure that employees are informed about the plan, its features, benefits, and any contributions they will need to make.

It is important to note that all these steps can be handled for you by a retirement consultant such as Zalamea. We can assist you with the entire process of setting up a retirement plan, from plan design to implementation. We can also help ensure compliance with legal and regulatory requirements and provide guidance on the best options for your business and employees. By working with a retirement consultant, you can streamline the process and ensure that your retirement plan is set up correctly and efficiently.