RA 7641 – RETIREMENT LAW

Qualification of employees subject to

retirement pay
Employees who are covered by RA No. 7641 can have an optional or
compulsory retirement.
Optional Retirement. — In the absence of a retirement plan or other
applicable agreement providing for retirement benefits of employees in an
establishment, an employee may retire upon reaching the age of sixty (60)
years or more if he has served for at least five (5) years in said establishment.
Compulsory Retirement. — Where there is no such plan or agreement
referred to in the immediately preceding sub-section, an employee shall be
retired upon reaching the age of sixty-five (65) years.
Upon retirement of an employee, whether optional or compulsory, his services
may be continued or extended on a case to case basis upon agreement of the
employer and employee.
Service Requirement. — The minimum length of service in an establishment
or with an employer of at least five (5) years required for entitlement to
retirement pay shall include authorized absences and vacations, regular
holidays and mandatory fulfillment of a military or civic duty.

ligibility and Benefits

Employees who retire – not resign – at age 60 with at least 5 years of service
with the company will be entitled to the minimum regulatory benefit under RA
7641. What must be noted here is that a retiring employee must satisfy the
dual condition of both minimum age (Age 60) and minimum service years (5
years) to be eligible for entitlement under RA 7641.
So what then is the benefit under the Retirement Pay Law?
A brief backgrounder: the actual text of RA 7641 uses the term “one-half
month salary for every year of service.”However, one should not make the
mistake of thinking that “one-half month” means “50%” — because it does not.
 The reason for this is that RA 7641 goes on to further define that “one-half
month” includes ALL of the following three components:
 15 days salary
 cash equivalent of 5 days of service incentive leave, and
 1/12 of the 13th month pay
Looking at just the first two components, “one-half month” under RA 7641 is
clearly already more than just 50% of the monthly salary. Add the third
component, and the actual benefit comes out as approximately 22.5 days pay
for every year of service. This now is the minimum benefit when retiring under
RA 7641.

Now that the eligibility and benefit under RA 7641 are defined, what other
questions should one ask? One common question is, “Does RA 7641 also
require my company to set up a formal retirement plan?”
The answer, very simply, is No.
To clarify, the purpose of RA 7641 is to prescribe the minimum retirement
benefit to be paid by the company to its qualified employees. But since RA
7641 does not require a company to also set up a formal retirement plan, it
becomes clear that the obligation under RA 7641 is simply for a company to
pay the regulatory benefit when it becomes due.
Whether or not this payment will come from the company’s general funds or
from a retirement trust fund under a formal retirement plan is a decision to be
made entirely by the company.