RSBS revisited

All it required, inherent vulnerabilities notwithstanding, to "screw up" the Armed Forces of the Philippines-Retirement and Separation Benefits System, was a meeting of minds between the Chief of Staff of the AFP and the Secretary of National Defense. In short, it was a classic case of "partners in crime" — what one administered, the other approved.

Under Presidential Decree 361, the CSAFP administered the RSBS through a board organized by himself, subject to the SND's approval. There was a nine-man Board of Trustees that the CSAFP appointed, from its president down.

PD 361 stipulated that the retirement benefits of retiring AFP personnel would be paid out of annual congressional appropriations for the AFP. Per the proviso, when the payment of retirees' pensions exceeded P100 million in any year, the excess would be paid out of the RSBS funds.

After the initial seed capital of P200 million had been given to RSBS, no further sums were appropriated/paid into RSBS. No Congress — across the terms of Presidents Corazon Aquino, Fidel Ramos and Joseph Estrada — initiated appropriations for the RSBS pension system.

Since then, the retirement benefits for retiring AFP personnel were included in the regular annual appropriation for the AFP in the General Appropriations Act. Under PD 1656 dated 21 December 1979, 5 percent of the monthly base pay of AFP personnel was to be deducted as their compulsory contribution to their retirement fund.

RSBS thus became an investment company mandated to "provide perpetually the cash requirement for the retirement benefits of military personnel on a self-sustaining basis." However, the yearly cash requirement for the retirement benefits shall come from the annual general appropriation for the AFP until "perpetual self-sufficiency of the funds is attained as determined by actuarial evaluation."

The truth, however, was that the national government continued to fund the annual pension requirement for retired and retiring military members to which the RSBS contributed nothing or ever took up the burden. Apparently, the only "statutory obligation of the RSBS was to return the compulsory contributions of members of the AFP upon retirement."

What was quite strange was that RSBS was allowed to use the contributions of AFP personnel to generate investment revenues that were tax-exempt, without paying compensation for its use. It was a good thing that on 25 February 1992, a standard operating procedure provided for a "grant" of 4 percent interest per annum on members' contributions compounded yearly effective January 1992 and it was tax-exempt.

Again, effective in January 1996, the tax-exemption granted to members' contributions was increased to 6 percent per annum compounded annually. These compulsory contributions constituted a continuing significant source of investible funds.

For example, the aggregate total of members' contributions returnable upon members' compulsory retirement at year-end 2002 stood at P3.5 billion. However, the yearly inflow of members' contributions in the last five years (1998 to 2002 inclusive) was around P2.5 billion.

Apparently, RSBS aggressively went into real estate investment and portfolio loans to new companies. It also plunged into heavy short-term borrowing to expand these two-fold pursuits.

The 1997 Asian Financial Crisis that precipitated a drop in real estate values in the country affected RSBS, resulting in losses over the years 1998 to 2001, not to mention the interest expense over the same period due to short-term borrowings which may well have run to P1.8 billion (1997 to 1999).

The Senate Committees on Accountability of Public Officers and Blue Ribbon did a joint inquiry on alleged anomalies at RSBS where it was found that "very extensive real estate acquisitions by RSBS were attended by massive overpricing." The initial report came out on 21 December 1998 and the final one on 20 May 1999.

Verily, the Senate committee reports, together with the principal findings and recommendations of the fact-finding commission on the RSBS problem, were well documented and instructive to policymakers. Ideally, an AFP Service and Insurance System must be insulated from the reach of both the CSAFP and the SND, lest the vicious cycle recur.

(Note. The RSBS was dissolved by Executive Order 590 on 31 December 2006.)