THIS year the final verdict on the Armed Forces of the Philippines-Retirement and Separation Benefits System’s (RSBS) decision to cease operations and gradually return the contribution of its members within a three-year period will be known.
The decision, which is subject to the approval of the Governance Commission for Government-Owned and -Controlled Corporations (GCGOCC), will make the RSBS return to the soldiers beginning this month the sum of P12 billion, which they have contributed to the pension fund out of their monthly salaries.
“I am still waiting for their [GCGOCC] decision…we have already submitted everything,” RSBS President and CEO Norman Legaspi said on Sunday, adding, “yes, we will shut down…going to deactivate.”
The move by the RSBS, as announced by Legaspi last month, has sent quivers down the spines of military personnel, fearing they could no longer recover their hard-earned money, which was collected at the flat rate of 5 percent out of their monthly pay since joining the service.
Fearing it could stoke a rebellion in the ranks, the military leadership, through the Public Affairs Office chief, Col. Noel Detoyato, quickly moves to assuage the soldiers by saying that even if it were shut down, the RSBS has more than enough money and assets to cover the return of the contributions.
“The RSBS has more than enough money and assets to cover all of the refund or return of the contributions of our members and pensioners,” Detoyato said.
However, Legaspi said the fear of soldiers was borne out of a misconception, as the pension fund would not totally ceases its operations. In fact, for him “deactivation” was not even the correct word.
Legaspi personally wanted that the RSBS would be put under receivership, so that it could still operate to return the money of its members and make investments with financial returns, other than in the areas of real estate and joint investments.
It would be put under receivership, so that it could dispose of its assets while paying the soldiers.
Shutting down the operations of the pension fund for the nth time was the best option for the management of the RSBS, which was left between the “devil and the deep blue sea.”
But beyond the issue of money, legal question also lingers whether the RSBS, which was supposed to have been inoperational many years ago, can be shut down without an act by Congress.
In 2006 then-Army chief Maj. Gen. Romeo Tolentino and a member of the board of trustees of the pension fund, along with the military’s top brass, said the RSBS has incurred huge losses during past years that it could no longer meet the fund requirement of soldiers.
Tolentino and the other officials said the pension system has to be shut down in order to stop its continued bleeding and gasp for life, and be replaced by a new pension fund that would be administered and managed by highly qualified private managers.
Then-Defense Secretary Avelino Cruz also said the fund was “structurally flawed.”
The soldiers’ fund was set up as a “funding mechanism” to guarantee continuous financial support to the military retirement system. It was conceived to take over from the government the payment of retirement and separation benefits, “at a time when it is self-sufficient.”
Self-sufficient, its charter says, is when 10 percent of its total cash could already attend to the pension requirement of military personnel.
By law, the RSBS came into being on December 30, 1973, through Presidential Decree 361, which was issued by former President Ferdinand Marcos, but went into actual operations in 1976, when a seed fund of P200 million was given by the government in four tranches.
At that time, the RSBS needed P2 billion to fulfill its mission of taking over the retirement benefits of soldiers.
With the small fund, it has to increase its money from other sources, which include the contributions of its members (5 percent of the monthly salaries of soldiers), donations, grants and the fund earnings, which are tax-free.
With its funding sources, it is clear from the very start that it is already underfunded.
For, among others, unlike the regular pension funds—the Government Service Insurance System and the Social Security System—which have total employer and employee contributions rate of 21 percent and 9.4 percent, respectively, the RSBS only collects 5 percent, and solely from its members.
It did not take into consideration the increase of pension costs, which is brought about by the continuous increase in the salaries of military personnel, increase in the number of pensioners and their life span.
In December 2006 then-President Arroyo followed the recommendation of the military by issuing Executive Order 590, deactivating the RSBS, but still it continued operating.
In 2009 then-Defense Secretary Gilbert Teodoro also moved for the dissolution of the RSBS by submitting a proposed bill with the House of Representatives that seeks to dissolve it, as it failed in its mandate as a pension system for retired military personnel.
He said the current position and financial standing of the retirement system for retired soldiers only calls for its dissolution as the best possible option.
At that time, Teodoro said the RSBS has not been operating for years because of the same budgetary constraint, which was partially brought about by losses.
Teodoro, a lawyer and a bar topnotcher, said the RSBS was a creation of law, and only Congress can kill it. He also did not recommend a substitute pension system.
“Establishing a new pension plan for the Armed Forces is more difficult to conceive and to envision. There are several issues involved. For example, will the current members of the Armed Forces be paying in the future [pension fund]? Because you cannot have retirement benefits until you load up the retirement fund for how many years and make it grow,” Teodoro said at that time.
Another problem is funding or the seed money for its initial operations.
“Is the government willing to put in capital contributions again for that pension plan? On the other hand, is the Government Service Insurance System capable also of accepting members of the Armed Forces, given the different risk profile of the soldier and given the capital adequacy of the system?” he asked.
In September 2010 Defense Secretary Voltaire Gazmin also ordered the military to conduct a study about a new pension system that would replace the RSBS; but like the proposal in Congress, nothing came out of it.
Legaspi said previous officials already knew the problem and yet, they did not move to fix it. “What did they do?” he asked.
He said that aside from the issue of mismanagement, previous officials erred over the move to give 6 percent in refund to the members, aside from the pension.
The RSBS president, however, clarified the fund is not yet giving out pensions.
Under Legaspi, the RSBS was able to accumulate some P15 billion in assets, while it only needs P12 billion to return the contribution of its members.
Image credits: AP/Bullit Marquez