“Costly health issues usually crop up during retirement age is taken into account.

As managing partner of a law firm for 12 years, I have proven to myself time and again my long-held belief that the people are the most valuable asset of an organization. As such, apart from striving to create a work environment that is fulfilling and filled with opportunities for growth, it has always been our policy to constantly provide our employees with competitive salaries and effective benefits package.

In the country, retirement plans are increasingly becoming one of the much sought-after benefits for employees. While retirement plans are uncommon and challenging to maintain, especially for law firms, not a few have set up retirement plans for their employees. The objective is not only to attract and retain talented, hardworking and dedicated individuals but, more importantly, help them attain a more financially stable future. After all, most employees, if not all, hope to achieve financial security in retirement. Considering that they will no longer be gainfully employed, they may use the benefits that they will receive from the retirement plan in income-generating investments. The significance of retirement plans also becomes more magnified when the fact that costly health issues usually crop up during retirement age is taken into account.

Because of the increasing importance of retirement plans, it is imperative to know the different types of and basics of retirement plans available to employees in the private sector. This is aptly discussed in the 2017 case of United Doctors Medical Center vs Bernadas, in which the Supreme Court (SC) discussed and identified the three different kinds of retirement plans.

The first type is the compulsory and contributory scheme established by the Social Security Law (SSL). Under this type, the employer and employee are each required by the law to make regular mandatory contributions which shall become a pension fund for the employee upon retirement. Considering that a portion of the employee’s monthly earnings is put into a fund in order to save money for retirement, the pension is not considered as mere gratuity but actually forms part of the employee’s compensation. The employee becomes entitled to the benefits upon satisfying the legal conditions imposed by the law.

“Most employees, if not all, hope to achieve financial security in retirement.

The second and third types of retirement plans are voluntary in character. These types may or may not require the employee to contribute to a pension fund. The second type is one set up by agreement between the employer and the employees in collective bargaining agreements or other agreements between them such as employment contracts. The third type is one that is voluntarily given by the employer, expressly as in an announced company policy or impliedly as in a failure to contest the employee’s claim for retirement benefits.

While the second and third types are voluntary in nature, it is good to note that the employer and employee are not absolutely unrestrained in establishing the stipulations of their retirement agreements as Article 302 of the Labor Code provides the rules that these voluntary agreements must conform to.

First, the Labor Code does not require the employers to set up a retirement scheme for their employees over and above that already established under the SSL. In any case, the employers and employees may agree on a retirement plan or the employers may voluntarily give the same as a matter of policy and, in either case, the subject plan is merely in addition to that embodied in the SSL. Therefore, the additional retirement plan cannot be substituted for or the retirement benefits reduced under the compulsory scheme.

Second, if there is an additional retirement plan that is in place, the employee may be retired upon reaching the retirement age established therein. It also goes without saying that the employee is entitled to receive such retirement benefits as he may have earned under the said plan.

Third, in the absence of an additional retirement plan providing for retirement benefits of employees in the establishment, an employee may be retired and given retirement pay upon meeting the conditions set forth under Article 302 of the Labor Code. It bears noting that there is a “default” or “fourth type” of retirement plan but which the SC did not discuss and classify as such in the case I earlier mentioned. This is found under Article 302 of the Labor Code, which provides that “an employee upon reaching the age of 60 years or more, but not beyond 65 years which is hereby declared the compulsory retirement age, who has served at least five years in the said establishment, may retire and shall be entitled to retirement pay equivalent to at least one-half month salary for every year of service.”

The “default retirement plan” shall apply to all employees in the private sector, regardless of their position, designation or status and irrespective of the method by which their wages are paid. They shall include part-time employees, employees of service and other job contractors and domestic helpers or persons in the personal service of another. However, the law does not cover employees of retail, service and agricultural establishments or operations employing not more than 10 employees.

Now that you know the different types of retirement plans, you can check with your employer or appropriate HR personnel which one/s apply to you. After all, you are supposed to enjoy your retirement after all the years of sacrifice and hard work and not be hounded and stressed out by financial instability later on. Prepare now while you still can—be a man with a (retirement) plan!

For comments and questions, please send email to nilo.divina@divinalaw.com