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Should AFP adopt new pension scheme?

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04:26 AM August 8th, 2011

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By: Ramon J. Farolan, August 8th, 2011 04:26 AM

First of all, let me greet Sen. Antonio “Sonny” Trillanes on his 40th birthday, his first as an elected senator enjoying fully the freedom that was denied him for seven long years by the previous administration. In an unprecedented act of betrayal, the Arroyo government charged him in a civilian court although the terms of surrender called for military justice under the Articles of War.

As I mentioned in a column last year, Ninoy Aquino spent seven years and seven months in prison. Sonny Trillanes spent seven years and six months in a Camp Crame detention cell. Two elected senators, both spending about the same time in prison; one assassinated at the Naia, the other gearing up for reelection in 2013.

Sonny Trillanes was elected to the Senate in 2007, just two months short of his 36th birthday. He was chosen by the people while in detention, unable to move around freely in order to campaign like other candidates, and working with very limited resources. Yet he won with more than 11 million votes, coming in at No. 11 in the senatorial victory lineup, besting administration giants like Mike Defensor, Ralph Recto, Prospero Pichay, and Miguel Zubiri, who placed No. 12. (Zubiri resigned his Senate seat last week.)

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In 1973, Presidential Decree 361 created the Armed Forces Retirement and Separation Benefits System (AFP RSBS). Among its pertinent provisions were the following:

Initial funding (seed money) of P200 million in four equal annual payments starting in July 1974

AFP personnel to contribute 4 percent of monthly base and longevity pay

Contributions plus 4 percent interest refunded to those not eligible for retirement benefits

Retirement benefits would be paid from appropriations, but after four years the system would shoulder requirements in excess of P100 million

Funding for RSBS to come from appropriations and contributions, donations, gifts, and other earnings of the system

System to be administered by the AFP chief of staff

What was the purpose of the RSBS?

The RSBS was set up as a funding mechanism to guarantee continuous financial support for the military retirement system. The system upon attaining self-sufficiency would take over from the national government the payment of retirement/separation benefits of AFP personnel.

Why did the RSBS fail to attain self-sufficiency and assume payment of military pensions, which was the rationale for its creation?

The drumbeaters for a new pension scheme, to be known as the Philippine Military Pension System (PMPS), argue that the original RSBS was bound to fail because of several flaws in its charter: (By the way, the acronym makes it sound like a woman’s condition of discomfort—Pre-Menstrual Position Syndrome. I can almost see media going to town on this one.)

Actual funding was inadequate—government seed money of P200 million was given in five tranches starting in 1976 and spread over a four-year period. But as early as 1970, the funding requirement was already P712 million. From the very start, the system was underfunded.

Structural flaws—employer-employee contribution rate of RSBS was 5 percent coming only from the member without any government share. In the case of GSIS and SSS, contribution rates were 21 percent and 10.4 percent, respectively, without any refund. Contributions came from both employer and employee.

The bright boys who came up with the RSBS charter obviously did not do their homework. Otherwise they would have discovered these flaws without too much effort. But that is what happens when people are gung-ho on a project for reasons of their own. The focus is on getting things started right away, believing that substantial issues can be addressed later and usually done by throwing more money down the drain.

The drumbeaters also warn that due to ballooning pension costs, there are signals that the government may be unable to continue paying pensions. They cite pension arrears of more than P15 billion. I would characterize these as scare tactics to get people on the bandwagon. We all know that any attempt to decrease pensions is a surefire formula for unrest in the military. Any sacrifices that need to be made must be shouldered by all sectors of society—the pork barrel of legislators, the excessive pay and allowances of executives of government corporations, the conditional cash transfers, and other similar government programs.

What is the status of the RSBS today?

Reports say that as of December 2010, RSBS remains stable with total assets of P12.6 billion as against liabilities of only P3.6 billion. Net income as of last year amounted to P108.6 million coming from real estate, marketable securities, lending, industrial park leases, and others.

One must take a close look at these figures. Accounting procedures differ from one agency to another. Smart accountants can make any company smell like roses for public consumption.

From a high of 203 regular employees in 2005, the manpower complement is now down to 85.

One last word. Any new pension scheme must also deal with the scandals of the past.

To the Filipino taxpayer, the RSBS is a reminder of the abuse of some military officers who took advantage of their position for personal profit and gain. Rightly or wrongly, the average citizen believes that RSBS failed not because of underfunding or structural flaws —although this may have been contributory—but more because of greedy hands and minds bent on advancing their own agenda to the detriment of the institution.

The reputation of the military organization has suffered tremendously in recent months. We must be careful lest we repeat the mistakes of the past.

There are all kinds of proposals to improve on RSBS. As with all programs, much depends on the individuals tasked to carry out any new initiatives. We must be prepared to reach outside of military circles to ensure that old boy networks do not dominate and interfere with the proper administration of the System.

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