1. Q: Is setting up a retirement plan for my company mandatory? Is it in the law?

A: Republic Act No. 7641 requires paying retirement benefits, but formally setting up a retirement plan is not required. However, without an established and funded retirement plan, the benefits to be received by the employee (in excess of the minimum required by law) will be taxable, the employer may not be ready for a big cash outlay when an employee retires, and the company cannot enjoy tax-free investments of the retirement fund.

2. Q: How much would be my contribution? Will my employees contribute too?

A: Your contribution depends on the employee profile and amount of benefits to be given. The employees may make an additional contribution only if the benefit is greater than the minimum required by law.

3. Q: How can I set-up the retirement plan?

A: You should have a plan design. Then choose an actuary and a trustee (Trust banks, investment houses, individual trustees and insurance companies). After the plan has been set up, you will file it with BIR for tax exemption qualification. Call us and it will be our pleasure to help you fomally set up your retirement plan.

4. Q: What are the usual employee benefits that are given by other companies?

A: As part of the retirement plan, retirement benefits (normal, early, or late), death and disability benefits, and resignation benefits may be given to eligible employees.

5. Q: Are there any tax implications if I setup a retirement program for my company?

A: The retirement benefits to be received by an employee who is at least 50 years old and with at least 10 years of service will be tax-free even if it is greater than the minimum benefit required by law. The investment earnings of the retirement fund will also be tax-free. Contributions to the retirement fund may be considered as a tax-deductible expense for the company subject to certain limitations.

6. Q: What is the difference between a trusteed retirement plan, an insured plan and a pre-need plan?

A: There is more flexibility with a "trusteed" retirement plan compared to an insured plan. You can choose the benefit, contribute only when you are financially capable, and choose your own trustee that you can change anytime. Furthermore, all the investment earnings go directly to the fund and if the plan is tax-qualified, the investment earnings are tax free.

In an insurance plan, your company pays the insurance company a specified amount of premium for a specified amount of benefit.

A pre-need plan is similar to an insured plan in that you pay the pre-need company a specified amount of benefit. In some cases, the payment of contributions is for a limited number of years only.

7. Q: Do we need to setup a retirement plan even though we are a small or a new company?

A: Not necessarily, if the employees are still young, you can defer setting up the retirement plan since you are not expecting anyone to retire in the near future. But if the company is stable already, it is best to setup a retirement plan now. You expect to have smaller contributions that you can spread over a longer period of time rather than setting it up in the future with larger contributions.

8. Q: Are all employees eligible for a retirement benefit? What are the qualifications for eligibility?

A: Basically, all regular employees are eligible for membership in a retirement plan. But it is still the company's prerogative to choose whom to be allowed for membership without discrimination. However, eligibility for benefits depends on certain criteria such as age and years of service.

9. Q: Do we need to really fund for the retirement plan of our employees now? Or can we fund it in the future? Is it all right for us to give a lower retirement benefit than the minimum?

A: It is actually up to you. The longer you wait, the bigger the cash outlay will be, due to a shorter funding period. However, you already have to recognize the liability. You can fund for a lower benefit but you will pay an additional benefit upon retirement, this is not advisable.

10. Q: What is an Actuarial Valuation of the Retirement Plan?

A: Actuarial Valuation is the computation of liabilities and recommended contribution rates given specific benefits, employee data and fund balances, using certain actuarial assumptions such as interest, salary increase factor, mortality, disability, and withdrawal factors. Given complete, accurate data, AAI can give you the results within 10 working days.

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