| 1 | 2 | Recent Page

6) What are the advantages of having a retirement plan tax-qualified by the BIR?

First, the tax benefits are directly felt.
  • Income earnings of trusteed plans are not taxed.
  • Contributions are tax deductible expense (maybe amortized if limit is exceeded)
  • Benefits to employees are tax exempt under certain conditions.

    • A retirement plan may also provide a moral boost as employees feel that the company has their future in sight.

7) Is it expensive to set-up a retirement plan?

If RA 7641 is the only benefits in the plan then the answer is No. Moreover, the tax-advantages of item 6 could be availed of.

The initial contribution to the fund could be as low as 10,000 – 50,000 depending on the trustee bank or group universal life product (insurance).

8) How can we determine the cost of funding a retirement plan?

An actuarial funding valuation (not PAS19) should be performed to determine the cost of the retirement plan. We understand that clients have different needs that is why we provide tiered services.

The usual standard funding valuation in the market provides for the recommended contribution for one year. We at KAI call this Tier 1 but add the following value-added services

  • Twenty year expected benefits
    • Will assist the client to prepare for the expected benefit payments
  • Cost and liability are itemized into decrements – retirement, turnover, death, disability, etc.
    • Will enable clients to determine the major contributors to the cost
  • Macaulay and modified durations
    • Provide assistance to fund managers in asset liability management decisions

Tier 2 builds on Tier 1 with the addition of sensitivity analysis. Such an analysis will help clients grasp the effect of key actuarial assumptions on liability and cost.

Tier 3 is a step above Tier 2 with the inclusion of actuarial projections until 100% funding ratio is reached. Such a projection will run across years (example 20 years) and will help clients prepare for contributions for multiple years and not just one year (Tier 1).