Military pensions in danger as COA reports P47-B fund shortfall

MANILA, Philippines – Our brave soldiers might find themselves in a different kind of battle when they retire.

In a report released Thursday, November 14, the Commission on Audit (COA) noted that the assets of the Armed Forces of the Philippines – Retirement and Separation Benefits System (AFP-RSBS) as of December 31, 2012 stood at only P14.339 billion.

It was P47.291 billion short of the estimated funding requirements of P61.63 billion based on an actuarial study by the Government Service Insurance System (GSIS).

This shortfall, along with the absence of clear policies in setting up the estimated liabilities on membership contribution, puts at risk the payment of retirement and separation benefits to the members of the AFP, said COA.

“Audit of the accounts disclosed that the system has not set up the actuarial reserve for its obligations to members,” said COA in its report.

Actuarial reserves are the funds that must be set up by AFP-RSBS to ensure payment of the benefits when these fall due. These are also a measure of RSBS’ fund sufficiency to finance payment of benefits on a continuous basis, COA added. 

The AFP-RSBS was created in 1973 by virtue of Presidential Decree No. 361, during the time of President Ferdinand Marcos. It started operations in 1976, with P200 million from the National Treasury.

Five percent of an enlisted military personnel’s monthly base and longevity pay is contributed to the RSBS. It will be refunded to him/her upon retirement or separation, together with an interest of 6%.

To ensure the availability of funds to meet maturing obligations – including the payment of retirement benefits – the AFP-RSBS is authorized to invest in various revenue-generating activities like investing in the stock market and participating in real estate projects, said COA.

However, the Comptrollership Department set up only an Estimated Liability on Members’ Contributions Earnings, further classified into “a Current Portion of Estimated Liability (to be paid during the year) and the non-current portion.”

To compute for the membership contributions payable, “they get the total disbursements (membership refunds) made in the immediate prior year, get the average, then multiplied by 13 months.”

“Since they have no data on how many will retire the following year, a good estimate is not possible. However, according to [the Comptrollership Department], the present computation has been close to the actual amount to be disbursed.”

If the amount is determined to be overstated or understated, “adjustments are made anytime within the year,” COA reported.

Actuarial study reveals shortfall

In 2010, the Department of National Defense (DND) requested GSIS to make an actuarial study to determine the funding requirements needed to manage the existing pension system. It was a directive to the DND by the Office of the President.

The study will also pave the way for a proposed Philippine Military Pension System Bill in Congress to institute reforms in AFP’s retirement benefit system.

Using data on active membership and pensioners as of 2010 and considering existing retirement schemes, “benefits on retirement, disability, death survivorship and withdrawal,” and other key assumptions, GSIS estimated that P61.63 billion needs to be set up for the system for calendar year 2012.

With an asset of only P14.339 billion at the end of 2012, the future payment of retirement and separation benefits to AFP personnel may be affected.

COA recommended that the AFP-RSBS management:

• Prepare policies, procedures, and guidelines on the Reserve and Actuarial setting
• Coordinate with AFP’s Finance Center regarding a complete and accurate list of active military personnel, to include the beneficiaries’s updated salary, years in service, contributions paid and retirement dates, among others
• Gather these data so that the Comptrollership Department can have an accurate computation of the membership refund for the coming years
• Study the possibility of setting up a reserve up to maturity/annuity which should form part of its policies, procedures and guidelines

Underfunded from the start

COA also studied the RSBS fund since its creation in 1973. Citing past actuarial valuation studies, “the fund never reached the state of self-sufficiency,” even with the P200 million seed capital.

“From its inception, the RSBS fund was underfunded and no further government contribution was infused to the system,” said COA.

In its rejoinder, COA still believes that the AFP-RSBS “should provide an actuarial reserve, not just a set-up of annual estimated liability on members’ contribution to cover the year’s funding requirement, if only to assure its members of the System’s capabilities to pay off its obligations when and as it falls due.”

COA also recommended that AFP-RSBS review its investment and asset disposal policies, so that it could generate revenue, which in turn would help fund its obligations to the members of AFP. – Rappler.com