17/06/2020
Concern: A retirement program is COSTLY
NO, IT IS NOT. If the retirement program only contains the benefits as provided by law, effectively there is no additional cost involved. Actually, taking into account the tax incentives, it is less costly to have a retirement plan than not having one.
Philippine Accounting Standards No. 19 (PAS 19) requires retirement cost to be accrued each year and actuarial valuations performed whether or not a company has a formal retirement program. If there is no retirement fund, there are no earnings to partially offset the cost, thus accruals are higher. Moreover, such accruals are not deductible expense for corporate income tax purposes.
For managing the retirement fund, trustee banks charge around 1% of the amount in the fund. The tax-free investment earnings, however, more than offset it.
The cost then is basically the minimal registration fee paid to BIR and the consultant’s fee for assisting the company set up the formal retirement program.
What can be considered as additional cost are the benefits that a company may want to include which are not mandated like early retirement, resignation, death and disability benefits. They are usually included in the program to serve specific purposes but are not mandated.
Still, the early retirement, death and disability benefit costs, should the company decide to include them, may not be much.
Please send us an email or message us if you have questions. We can have an online marketing presentation thru skype, zoom, and other online platforms.
