103 OG No. 8, 886 (Feb. 19, 2007)
WHEREAS,
the Armed Forces of the Philippines (“AFP”) Retirement and Separation
Benefits Systems (“RSBS” or “System”) was established under Presidential
Decree No. 361 issued on 30 December 1973 (PD 361) to provide the
funding scheme for the payment of retirement and separation benefits
provided under existing laws to military personnel of the AFP;
WHEREAS,
under Section 5 of PD 361, as amended by Presidential Decree No. 1656
issued on 21 December 1979 (PD 1656), the funds of the RSBS shall be
allowed to grow to be able to provide perpetually the cash requirement
covering the retirement and separation benefit payments to military
personnel on a self-sustaining basis, and that prior to the time when
perpetual self-sufficiency of the funds of the RSBS is attained as
determined by actuarial valuation, the yearly requirement for retirement
and separation benefits of military personnel as provided under
existing laws shall be fully funded out of the annual appropriations for
the AFP;
WHEREAS, in the
Senate Blue Ribbon Committee Report
issued in 1998, the revision or creation of a new RSBS Charter was
recommended, providing for a highly structured organization, with
clearly defined powers and functions, and strict investment guidelines;
WHEREAS, in the
Feliciano Commission Report issued in 2003, it was determined that the RSBS, in its present conception and structure, was “
fundamentally flawed”
and had not discharged its mandate. Accordingly, the Feliciano
Commission recommended that the RSBS be liquidated in an orderly manner;
that soldiers’ contributions be returned to them with interest and that
an AFP Service and Insurance System be initiated, which shall be
subject to the financial and investment disciplines of the
Bangko Sentral ng Pilipinas (BSP) and the
Securities and Exchange Commission (SEC);
WHEREAS, based on the
Financial Advisory Report prepared by the
KPMG Laya Mananghaya & Co., Philippines (hereinafter, the “KPMG Report”) on the financial status and condition of RSBS, the following conclusions were arrived at:
- Inappropriateness
of RSBS’ investment portfolio, which consisted mainly of non-liquid
assets (i.e., real estate and equity investments in and advances to
non-traded companies) that take a long time to dispose, are risky and
with very low yields;
- Slow Fund build-up and inability to
achieve its goal of self-sufficiency, caused primarily by the low rate
of profitability of a majority of its assets, classified as
non-productive and low-yielding;
- Illiquid position as a large portion of its assets is in non-earning or low-yielding investments; and
- Inability
of RSBS to follow a Board Resolution, following the Senate Blue Ribbon
Committee investigation of RSBS in 1998, to divest and liquefy all real
estate assets and to focus on fixed-income investments.
WHEREAS, based on the
16th Actuarial Valuation
Report rendered by Feliciano F. Miravite, Inc. dated 30 November 2005,
it was concluded that the self-sufficiency projections under the current
valuation estimate the point of self-sustaining status of RSBS to occur
in the year 2058, and that the funds of the System shall be exhausted
within 32 years after achieving self-sufficiency in the year 2090;
WHEREAS,
the foregoing reports provided an indication of the estimated magnitude
of RSBS’ Fund deficiency, for the net assets of RSBS to be able to
satisfy the retirement benefit payments due to retired/retiring military
personnel under existing laws on the retirement benefits due them;
WHEREAS,
the Secretaries of the Department of National Defense (DND), Department
of Finance (DOF), and the Department of Budget and Management (DBM),
together with the Chief of Staff, Armed Forces of the Philippines
(CSAFP), have jointly recommended the deactivation and winding down of
the RSBS since it does not and will not be able to attain its objective
of attaining self-sufficiency, which means that the payment of
retirement benefits to be given to retired/retiring military personnel
shall continue to be funded by annual appropriations for the AFP in the
General Appropriations Act (GAA);
WHEREAS,
in order to insure that the Funds of the System shall be preserved for
the payment of the refund of members’ contributions as and when they
fall or become due, it is necessary to deactivate the operations of the
System in an efficient and orderly manner;
NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of the Republic of the Philippines, by virtue of the powers vested in me by law, do hereby order:
SECTION 1. Deactivation of the Armed Forces of the Philippines Retirement and Separation Benefits System.
The Armed Forces of the Philippines Retirement and Separation Benefits
System, a government instrumentality under the Executive Branch, is
hereby deactivated, effective 31 December 2006.
SECTION 2. Creation of Cabinet Oversight Committee. A Cabinet Oversight Committee is hereby created, composed of the
Secretary
of National Defense, the Secretary of Finance, the Secretary of Budget
and Management, together with the Chief of Staff, Armed Forces of the
Philippines (CSAFP), and a representative of the office of the
President designated by the President (hereinafter, the “COC-RSBS”). The
COC-RSBS shall provide policy guidelines for, and oversee, the final
liquidation of assets and liabilities of the RSBS, the winding-down of
its operations, and the retirement and separation of its personnel, in
accordance with existing laws, rules and regulations, as well as the
guidelines set forth in this Executive Order.
SECTION 3. Specific Guidelines for Deactivation, Liquidation and Winding Down of RSBS.
The deactivation of RSBS, particularly with respect to the liquidation
of its assets and liabilities, as well as the winding-down of its
operations, shall be subject to the following guidelines:
3.1. | Due Diligence of RSBS and its Subsidiaries.
– In order to accurately determine the financial condition of RSBS,
including all of its Subsidiaries, particularly with respect to the
actual value of its assets and liabilities for purposes of liquidation,
the Secretary of National Defense, coordination with the Secretary of
Finance, shall direct the conduct of a due diligence review of the books
of RSBS and its Subsidiaries as of 30 June 2006; |
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3.2. | Transfer of Assets to a Government Financial Institution Preparatory to Liquidation and Winding-Down.
– Upon determination of the net asset value of RSBS and its
Subsidiaries, the current assets of the RSBS and its subsidiaries shall
be transferred to a Government Financial Institution (GFI) [i.e.,
Development Bank of the Philippines (DBP) or Land Bank of the
Philippines (LBP)] recommended by the Cabinet Oversight Committee
created under Section 2 hereof (hereinafter, the “GFI Trustee”), for
programmed liquidation (hereinafter, the “Transferred Assets”), whereby
the GFI Trustee shall dispose of and liquidate as much of the
Transferred Assets, in accordance with the implementing rules and
regulations to be issued by the Cabinet Oversight Committee for the
purpose; |
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3.3. | Trust Account.
– The proceeds of the sale of the Transferred Assets shall, together
with all the mandatory contributions of military personnel collected by
the AFP as prescribed under Section 4 of PD 361 consisting of five
percent (5%) of their monthly base pay, shall be remitted to a Trust
Account, to be established by the GFI Trustee for the purpose. |
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3.4 | Professional Trust Management of Members’ Contributions.
–The funds in the Trust Account referred to in 1.3 hereof shall be
placed under professional trust management of the GFI Trustee, or such
other GFI professional fund manager to be approved by the Cabinet
Oversight Committee, subject to such investment guidelines as may be
prescribed in the rules and regulations to be jointly issued by the DND,
DOF and DBM to implement this Executive Order; |
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3.5 | Return of Members’ Contributions.
– The return of members’ contributions as mandated under PD 1656, plus
six percent (6%) interest upon the retirement of military personnel
shall be paid from RSBS funds in the Trust Account as and when they fall
due, and shall be guaranteed by the National Government. |
SECTION 4. Separation or Retirement of RSBS Personnel.
All officers and employees affected by the deactivation of the RSBS as
directed herein shall be retired or separated from the service, in
accordance with the provisions of Republic Act No. 6656, otherwise known
as “
An Act to Protect the Security of
Tenure of Civil Service Officers and Employees in the Implementation of
Government Reorganization,” and other applicable civil service laws, rules and regulations:
Provided, That in the implementation of the provisions of RA 6656, the provisions of Republic Act No. 6758, entitled “
An Act Prescribing a Revised Compensation and Position Classification in the Government and For Other Purposes,” otherwise known as the “
Salary Standardization Law” shall be strictly complied with.
SECTION 5. Assistance by the Government Corporate
Counsel. The Office of the Government Corporate Counsel (OGCC), is
hereby directed to assist the Cabinet Oversight Committee or the GFI
Trustee on any aspect relating to the deactivation of the RSBS as
directed herein.
SECTION 6. New Philippine Military Retirement System.
The DND is hereby directed to complete the study and prepare the draft
legislation that shall establish and set up a new retirement and pension
system for military personnel, that shall have strict guidelines on the
organization of its Governing Board, particularly the investment
parameters it is allowed to undertake in the course of the management of
its funds. The provisions of the new retirement and systems law shall
apply only to new recruits or entrants to military service, reckoned
from the date of effectivity of the new retirement and pension system
law.
SECTION 7. Effectivity.This Executive Order shall take effect immediately.
Adopted: 15 Dec. 2006
(SGD.) GLORIA MACAPAGAL-ARROYO
President of the Philipppines
By the President:
(SGD.) EDUARDO R. ERMITA
Executive Secretary