Republic of the Philippines
| House of Representatives

| Quezon City, Metro Manila

NINETEENTH CONGRESS
First Regular Session

| HOUSE BILL NO. 1825

Introduced by Representative Francisco Jose F. Matugas II

EXPLANATORY NOTE

As early as his Budget Message for the Fiscal Year 2017, former
President Rodrigo Roa Duterte already deemed as urgent the passage of a law
reforming the pension system of military and uniformed personnel.

“The reform on Military and Uniformed Personnel (MUP)
pension shall be pursued in view of the ballooning budget burden
where the total cost of the pensions of retired soldiers will exceed the
compensation of those in the active service. The proposed law will
create a pension fund that is similar to or part of the Government
Service Insurance System, replacing the current system where the
pensions of the military and other uniformed personnel are
appropriated annually by Congress.”

In a study conducted by the Congressional Policy and Budget Research
Department', it was found that the existing pension system “has long exerted
considerable strain on the National Government's finances and has been the
subject of reform proposals.” According to the study, there are two main
considerations. One is “the fiscal strain on the national budget due to the
absence of a contributions-based fund from which MUP benefits would be
sourced.’ Second is “the indexation policy which pegs retired MUPs' pension to
the salary received by their counterparts in active service.”

' PB2021-01: Promoting Sustainability Through Reform in the Pension System For Mi
Uniformed Personnel at https://epbrd.congress. gov.ph/2012-06-30-13-06-5 1/2012-06-30-
45/1320-ph2021-01-promoting-sustainability-through-reform-in-the-pension-system-for-military-
a



This bill seeks to address those issues or considerations.

This bill was filed by the undersigned in the 17 Congress where it was
deliberated in the Technical Working Group and in the 18" Congress where it
was reported out by the Ad Hoc Committee on the Military and Uniformed
Personnel (MUP) Pension System. This bill is already the version reported out
by the Ad Hoc Committee. Since the bill was already extensively discussed by
the Ad Hoc Committee, the passage of this bill is immediately sought.

FRANCISCO JOS! MATUGAS II
Surigao del Norte, First District
(Siargao Island)



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Republic of the Philippines
House of Representatives

| Quezon City, Metro Manila

NINETEENTH CONGRESS
First Regular Session

HOUSE BILL NO. 1825

Introduced by Representative Francisco Jose F. Matugas II

AN ACT CREATING A SUSTAINABLE FISCAL FRAMEWORK
FOR THE PENSION SYSTEM OF THE MILITARY AND
| UNIFORMED PERSONNEL, PROVIDING MECHANISMS
FOR THE DISPOSITION OF GOVERNMENT ASSETS
FOR THE PURPOSE, AND APPROPRIATING FUNDS
THEREFOR

Be} it enacted by the Senate and House of Representatives of the
Philippines in Congress assembled:

TITLE I
| General Provisions

SECTION 1. Short Title. - This Act shall be known as the “Military and
Uniformed Personnel Pension Act”

SEC. 2. Declaration of Policy. - The State duly recognizes the vital role
of the military and uniformed personnel in providing internal and external
security, promoting peace and order, and ensuring public safety.

The State also recognizes its obligation to secure the pension system for
the military and uniformed personnel given the distinctive personal risks in
their role in nation building and national security.

To protect the military and uniformed personnel against the
extraordinary hazards, risks, and dangers that they encounter in the
performance of their duties, the State shall ensure that there shall be an

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adequate, robust, and a well-managed insurance system that shall adequately
and sustainably support their needs and that of their dependents.

Towards these ends, the State shall guarantee the sustainability of the
pension and other benefits of the military and uniformed personnel by creating
a fiscal framework that fully supports their funding requirements.

SEC. 3. Definition of Terms. - As used in this Act:

(a)| Military and Uniformed Personnel refers to all employees of the
government who wear uniforms, with ranks, may be armed or unarmed,
primarily involved in national defense, enforcement of laws, and in the
maintenance of peace, order, and security and who belong to any of the
following services: Armed Forces of the Philippines, Philippine National Police,
Philippine Coast Guard, Bureau of Fire Protection, Bureau of Jail Management
and Penology, Bureau of Corrections, and the employees of the Hydrography
Branch of the National Mapping and Resource Information Authority who were
transferred from the Bureau of Coast and Geodetic Survey;

(b) Pension refers to the sum of money representing the monthly
stich pay or the monthly life annuity of a military and uniformed
personnel;

(©) Survivorship Pension refers to the monthly benefit or the monthly
life annuity of the beneficiaries of a military and uniformed personnel who is

retired or separated under the provisions of existing laws.

TITLE IT
Fiscal Sustainability of Pension Benefits

SEC. 4. Fiscal Risk Management. - To ensure that fiscal risks related to
the military and uniformed personnel pension system are managed and
addressed, the Secretary of Finance, as Chairperson of the Military and
Uniformed Personnel Trust Fund Committee created under Section 9 of this

Act, shall:
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@, Formulate policies, consistent with law, to ensure the fiscal
sustainability of the pension of military and uniformed personnel;

(b)| Assess possible risks to the fiscal sustainability of the pension of
military and uniformed personnel and propose appropriate policy
interventions:

(©) Identify, manage, and control risks that the pension of military
and uniformed personnel may pose to the national government's fiscal position;

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Statement and propose legislative reforms to address such risks; and

Inform Congress of such risks through the annual Fiscal Risk

(©), Obtain information from any officer or office of local governments
and agencies and instrumentalities of the national government, as may be
seccmerf

SEC. 5. Maturity Benefit from the Insurance Plan. - A military and
uniformed personnel who is retired or separated under the provisions of
existing laws, or the qualified survivors in the case of death before retirement
or separation, shall receive the maturity benefit from the life insurance plan
funded by mandatory contributions paid by the military and uniformed
personnel under Section 14 of this Act. The Military and Uniformed Personnel
Trust Fund Committee as created under Section 9 of this Act, shall provide
mechanisms to allow the enjoyment of this benefit either as a lump sum or in

annuitized payments.

SEC. 6. Disability Pension. - In lieu of disability benefits provided under
existing laws, a military and uniformed personnel who is retired by reason of
disability, which is the proximate result of wounds or injuries sustained or
sickness or disease acquired in the line of duty shall receive a monthly
disability pension corresponding to the disability incurred at the time of

separation:

(a) Ifand while the disability is rated twenty-five percent (25%) - Five
thousand pesos (P5,000.00);


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() If and while the disability is rated fifty percent (50%) - Ten
thousand pesos (P10,000.00);

(©) If and while the disability is rated seventy five percent (75%) -
Fifteen thousand pesos (P15,000.00); and

(@) If and while the disability is rated one hundred percent (100%) —
‘Twenty thousand pesos (P20,000.00).

SEC. 7. Capped Automatic Indexation to Adjustments in Active Personnel
Pay, - The adjustment in pension of retired or separated military and
uniformed personnel and survivorship pension of qualified survivors shall be

personnel in active service holding the same rank: Provided, That within ten

rood indexed to adjustments in the salary of military and uniformed
(10) yeary from the effectivity of this Act, the adjustment in the salary of active
military and uniformed personnel shall not exceed five percent (5%) at any
given year and the adjustment in the pension and survivorship pension shall
not exceed five percent (5%) during the same year.

The President of the Philippines is hereby authorized, upon the
recommendation of the Military and Uniformed Personnel Trust Fund
Committee as created under Section 9 of this Act, and subject to consultation
with the President of the Senate and the Speaker of the House of
Representatives, to increase the pension and survivorship pension at a rate
lower than the adjustment in the salary of active military and uniformed
personnel of the same rank if the national government incurs an

unmanageable public sector deficit.

TITLE II
Military and Uniformed Personnel Trust Fund

SEC. 8. Military and Uniformed Personnel Trust Fund. - The Military
and Uniformed Personnel Trust Fund, hereinafter referred to as the MUP
Trust Fund, is hereby created for the budgetary support of the military and
uniformed services, including the payment of pension and survivorship pension



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under existing laws and the disability pension and other benefits under this
Act.

SEC. 9. Military and Uniformed Personnel Trust Fund Committee. - To
carry out the declared policy of this Act, the Military and Uniformed Personnel
Trust Fund Committee, hereinafter referred to as the Committee, is hereby
created. The Committee shall be organized within ninety (90) days from the
effectivity of this Act. The Committee is composed of the following members:

(a)| Secretary of Finance, as Chairperson;

() Secretary of Budget and Management;

(©) Secretary of National Defense;

(@ Secretary of the Interior and Local Government;

© Secretary of Justice;

() Executive Secretary of the Office of the President; and

(g) President and General Manager of the Government Service
Insurance System.

The Bureau of the Treasury shall serve as the Secretariat of the
Committee and maintain the records and accounts of all investments, receipts,
disbursements, and other transactions relating to the management,
administration, and utilization of the MUP Trust Fund: Provided, That these
records and accounts are maintained in accordance with the existing
accounting and auditing laws, rules, and regulations and audited by the
Commission on Audit.

SEC. 10. Powers and Functions of the Committee. - The Committee shall
exercise the following powers and functions:

(a) Act as Trustee of the MUP Trust Fund and such other assets as
may be assigned to the pension system of the military and uniformed personnel
and direct how the assets of the MUP Trust Fund are managed;

(b)| Manage the MUP Trust Fund, through the fund manager
designated under Section 11 herein, and ensure that the fund is actuarially

and financially optimal and sustainable;


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(©) Authorize the necessary expenses to manage and administer the
MUP Trust Fund;

(@ Authorize and direct the creation of a life insurance system for
military and uniformed personnel which shall cover death and disability
benefits im addition to those provided under this Act, to account for the
significant risks involved in military and uniformed service and indemnify

personnel who suffer such risks, and set reasonable mandatory insurance

premiums therefor;

Pita, That the insurance system shall be administered by the
Government Service Insurance System and supervised by the Insurance
Commission: Provided, further, That the insurance system shall be managed
separately from the pension system: Provided, finally, That, subject to the
authorization of the Committee, the insurance system may undertake
investments in debt and equity securities and in the money market, real estate

investments, and other viable investments;

(e) Authorize and direct the creation of a provident fund or a mutual
fund;

(| Implement and execute functions related to the disposition of
assets identified under this Act;

® Create, manage, and utilize separate trust fund accounts for the
budgetary support of the military and uniformed services, retirement and
survivorship benefits of military and uniformed personnel, provident or mutual
fund and insurance provisions;

(h) Cause the undertaking of a survey or consultation to assess the
preferences of military and uniformed personnel on the features of the pension
system, including willingness to pay for contributions and interest in various
benefit and investment schemes;

@ Commission an actuarial evaluation of the fiscal sustainability of

the pension scheme, including specific recommendations on the rates for



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contributions and investment options for the MUP Trust Fund, as applicable;
and

@) Perform other necessary functions for the effective management of
the MUP Trust Fund.

Provided, That within one (1) year from the effectivity of this Act, the
fund manager shall conduct the studies stated in Subsections (h) and (i) herein:
Provided, further, That the findings and recommendations obtained from the
studies shall be submitted to the Committee which shall promulgate
implementing rules and regulations with respect to the mandatory
contin scheme, and other features of the pension scheme as applicable:
Provided, furthermore, That an amount not exceeding Thirty million pesos
(€30,000,000.00) is hereby appropriated for the conduct of the studies:
Provided, finally, That the fund manager may engage the private sector, as
needed, sd ensure quality and timeliness in the implementation of the survey,
consultation, and actuarial evaluation.

SEC. 11. MUP Trust Fund Manager. - The Government Service
Insurance System is designated as the fund manager and _ benefits
administrator of the MUP Trust Fund, and shall:

(a) Implement an _ investment management and_ benefits
administration strategy as directed by the Committee;

(b) Monitor market and economic trends and track securities to make
informed investment decisions;

(| Recommend its portfolio strategy to the Committee;

(d@) ‘Track financial results of companies in the portfolio and its various
metrics, including price-to-earnings ratios, inflation-adjusted return, sales,
earnings, and dividends; and

(©) Perform other acts necessary to fulfill its mandate under this Act,
or such Ais that may be delegated by the Committee.

SEC. 12. Structure, Staffing Pattern, and Operating Budget. - The
organizational structure and staffing pattern for the management of the MUP

Trust Fund within the Government Service Insurance System and for the

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creation of the MUP Trust Fund Secretariat within the Bureau of the Treasury
shall be approved by the Committee within ninety (90) days from the
enactment of this Act: Provided, That appointees to various positions shall
comply with the qualification standards approved by the Civil Service
Commission: Provided, further, That the Government Service Insurance
System shall be entitled to a management fee, to be charged against the MUP
Trust Fund and its derivative incomes, including budgetary requirement
commensurate to the expertise and services rendered for the salaries and

benefits | officials and employees assigned to the Committee.

13. Joint Responsibility. - For the purpose of ensuring that only

iS)
qualified military and uniformed personnel retirees and beneficiaries shall
receive the retirement pension or separation benefits, the respective services
or mother units shall assist and share, jointly or separately, the duty and
obligation with the Committee in monitoring proof of life or life events that will
affect the qualification of pensioners and beneficiaries to receive the pension or
benefit. The initial computation of pension and benefits accruing to each retiree
or beneficiary shall be jointly undertaken and agreed upon by the concerned

mother unit and the Committee.

SED. 14, Funding Sources. - The MUP Trust Fund shall be funded
through the following:

(a) | Capitalization. - The amount of One hundred thirty billion pesos
(P130,000,000,000.00) shall be appropriated to the MUP Trust Fund to cover
the pension requirement of the Fiscal Year for which the fund was
appropriated. Such sums as may be necessary for the sustainability of the fund
as determined by the Committee shall be automatically appropriated and be
automatically released to the MUP Trust Fund.

(b) | Mandatory Contributions. - It shall be mandatory for military and
uniformed personnel to contribute a percentage of their monthly compensation
as their personal share to the MUP Trust Fund. There shall also be a National
Government share which shall be automatically appropriated and used


1 exclusively to fund pension benefits of the military and uniformed personnel.

2. The mandatory contributions shall be allocated as follows:

3 @ For the first three (3) years after the effectivity of this Act,
4 military and uniformed personnel shall contribute five percent (5%) of
5 their monthly compensation as personal share, while the National
6 Government shall provide an equivalent of sixteen percent (16%) as its
7 share;

8 | @ Thereafter, for the next three (3) years, military and
9 uniformed personnel shall contribute seven percent (7%), while the
10 National Government shall provide fourteen percent (14%); and

ee | Gi) For every year thereafter, military and uniformed personnel
2 shall contribute nine percent (9%) and the National Government shall
2B provide twelve percent (12%).

4 Provided, That contribution rates may be adjusted by the fund manager,

15 subject to actuarial validation: Provided, further, That forty-five percent (45%)
16 of mandatory contributions of the military and uniformed personnel shall be
17__-used for the establishment of a life insurance plan as authorized under this
18 Act, with death, accident, and disability benefits in addition to those mandated
19 under this Act; forty-five percent (45%) shall be used to establish the Provident
20 Fund; and ten percent (10%) shall be used for the payment of disability pension
21 granted under this Act: Provided, furthermore, That such allocations may be
22 periodically adjusted by the Committee based on actual need and actuarial
23 soundness: Provided, finally, That the life insurance plan shall include a cash
24 benefit that shall be due and collectible at the plan's maturity date, which shall
25 _ be the date of separation from service.

26 ©) Additional Sources of Funding. - The MUP Trust Fund may be
27 augmented from the unprogrammed appropriations and proceeds derived from
28 the lease, joint development, auction of development rights, or disposition of
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MUP Trust Fund identified and overseen by the fund manager subject to
actuarial validation, and savings of the National Government.

SEC 15. Government Guarantee. - The government of the Republic of the
Philippines hereby guarantees the fulfillment of the obligations of the MUP
Trust Fund to its members when they fall due.

SEC. 16. Disposition of Military and Uniformed Services Assets. - Within
thirty (30) days from the effectivity of this Act, the concerned military and
uniformed services shall submit a complete list of their real assets in the
manner prescribed by the Committee to identify additional sources of funding
for budgetary support of their services, and augment the financing of the
separation, retirement, and pension benefits of their military and uniformed
personnel under existing laws and this Act.

Thereafter, the Committee shall conduct a complete accounting and
inventory of the assets of military and uniformed services that may be used to
support the MUP Trust Fund, including the amount, value, description and
nature of such funds, properties, assets, records, choses in action, and other
rights, claims, or causes of action pertaining thereto, and submit a report to
the Office of the President, Congress, and the Commission on Audit.

Within thirty (30) days from the receipt of the inventory by the
Committee, the Commission on Audit shall audit the accounting and inventory
of the assets of concerned military and uniformed services to determine the
completeness of the inventory and establish the reasonableness of the asset
valuation.

Within one (1) year from the submission of the accounting and inventory
of the assets of concerned military and uniformed services, the Commission on
Audit shall submit to the Committee the audit report, including the complete
list of the assets of concerned military and uniformed services and their
valuation, and the empirical basis and the methodologies employed for the
valuation.

The Committee shall, within fifteen (15) days from the receipt of audit
report, publish the audit report in at least two (2) newspapers of general

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circulation. Nothing herein shall be construed as preventing the designated
disposition entity from procuring a third-party appraisal of any of the assets of
concerned military and uniformed services prior to or while preparing the
privatization or disposition plans of the assets.

The Committee shall coordinate with the Office of the President,
Philippine Reclamation Agency, and other disposition entities to be identified
by the Ci mmittee in the execution and delivery of this mandate.

oh er shall prioritize the disposition modes that may generate
income from these assets without undertaking the sale thereof except when the
Committee determines that selling a specific asset is the most optimal financial
option: Tessar That the Committee may sell only portions thereof to meet
the financial requirements.

To optimize revenues from the assets of the concerned military and
uniformed personnel services, the Committee may seek the services of the
Privatization Group of the Department of Finance which shall recommend to
the Committee the most financially advantageous manner of disposition of the
assets.

Unless otherwise directed by the President of the Philippines as the
Commander-in-Chief and upon the recommendation of the Secretary of
Finance, the proceeds from the disposition of assets of the concerned military
and uniformed services shall be earmarked for the budgetary support of the
military and uniformed services for capital outlay and maintenance and other
operating expenditures. The Committee shall allocate the proceeds from the
disposition of assets based on the funding requirements of the specific
purposes. The proceeds from the disposition of asset of the military and
uniformed services shall inure to the benefit of, or as budget support to, the
service to which the asset belongs if used towards budgetary support for capital
outlays, pension fund, and maintenance and other operating expenses.

Within one (1) year from the effectivity of this Act, the military and
uniformed services may add to the list such real assets required for

identification and submission under this Section and which belonged to the

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military and uniformed services prior to the effectivity of this Act. Any real
asset that is required by this Act to be included in the submitted lists and which
are not included in actual submissions by the military and uniformed services
may be disposed by the MUP Trust Fund Committee in the manner it deems
appropriate.

SEC. 17. Tax Treatment of the MUP Trust Fund. - Notwithstanding any
law to the contrary, the MUP Trust Fund, its assets, revenues, including all
accruals thereto, and benefits paid, are exempt from all taxes, assessments,
fees, charges, or duties of all kinds. These exemptions shall continue unless
expres and specifically revoked.

Subject to Section 20 of this Act, the MUP Trust Fund, the properties of
the military and uniformed services identified by the Committee to be disposed
and sums or monies for the payment of the benefits under this Act are exempt
from attachment, garnishment, execution, levy or other processes issued by the
courts, quasi-judicial agencies or administrative bodies and from all financial
obligations of the members, including pecuniary accountability arising from or
caused or occasioned by the members' exercise or performance of official
functions or duties, or incurred relative to or in connection with the members’
position fr work except when the monetary liability, contractual or otherwise,
is in favor of the MUP Trust Fund.

All other applicable tax exemptions granted to the Government Service
Insurance System shall also apply to the MUP Trust Fund.

TITLE IV
Transitory Provisions
SEC. 18. Transfer of Power and Functions. - For purposes of
administration of military and uniformed personnel pension and retirement
benefits, the powers and functions of units or instrumentalities of agencies that
employ military and uniformed personnel and administer their pension system

or parts thereof are hereby transferred to the MUP Trust Fund Committee.

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SEC. 19. Period of Transfer. - There shall be a transition period of five
(5) months from the effectivity of this Act to implement the transfer of powers
and functions, rights, assets, and liabilities mentioned in this Title: Provided,
That the same transition period shall be provided to allow the units or
instrumentalities of agencies administering the military and uniformed
personnel pension system to restructure: Provided, further, That all civilian
personnel in the units or instrumentalities administering the military and
uniformed personnel pension system affected by the transfer of powers and
functions provided in this Title shall continue in office without need of
reappointment: Provided, finally, That civilian employees in the units or
instrumentalities of agencies administering the military and uniformed
personnel pension system who opt to retire or resign as a result hereof, if

qualified, shall be allowed and be entitled to retirement and separation

benefits, under existing laws, available to officials and employees affected by

an approved reorganization program.

TITLE VI
Final Provisions
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SEC. 20. Non-encumbrance of Benefits. - The benefits authorized under
this Act, except as provided herein, are not subject to attachment, garnishment,
levy, execution or any tax whatsoever, and may not be assigned, ceded, or
conveyed to any third person: Provided, That if a retired or separated military
and uniformed personnel who is entitled to any benefit under this Act has
unsettled money or property accountabilities incurred while in the active
service, an amount not exceeding fifty percent (50%) of the pension gratuity or
other payment due to the military and uniformed personnel or their survivors
under this Act may be withheld and be applied to settle such accountabilities.

SEC. 21. Financial Literacy and Career Transition Training. - The
Bangko Sentral ng Pilipinas, in coordination with the military and uniformed
services, shall provide mandatory, periodic financial literacy training for active

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personnel. The military and uniformed services shall formulate skills
workshops for active personnel who plan to transition to other careers outside
of the uniformed service.

SEC. 22. Penal Clause. - Any person who participates, directly or
indirectly, in the commission of fraud, falsification, misrepresentation of facts,
collusion or any similar anomaly in the issuance of any certificate or document
for any purpose connected with this Act shall, upon conviction, be punished by
a fine of not less than the amount defrauded but not more than threefold of
such amount or imprisonment of not less than six (6) months and one (1) day
to six (6) years and perpetual disqualification from holding public office and
from practicing any profession licensed by the government.

SEC. 23. Implementing Rules and Regulations. - Within sixty (60) days
from the effectivity of this Act, the Secretary of Finance shall, in consultation
with the Secretaries of National Defense, Interior and Local Government,
Justice, Transportation, Environment and Natural Resources, Budget and
Management, and the Head of the Government Service and Insurance System,
promulgate the necessary rules and regulations for the effective
implementation of this Act.

Supplemental Rules and regulations governing the management and
administration of the pension system of the military and uniformed personnel
may be issued within one (1) year from the effectivity of this Act.

SEC. 24. Repealing Clause. - The pertinent provisions of these laws are
hereby repealed:

(a) Presidential Decree No. 361, entitled “Providing for an Armed
Forces Retirement and Separation Benefits System,” as amended by
Presidential Decree No. 1656 and Presidential Decree No. 1909;

(b) | Sections 23, 24, 26, and 31 of Presidential Decree No. 1638,
entitled “Establishing a New System of Retirement and Separation for Military
Personnel of the Armed Forces of the Philippines and for Other Purposes,” as
amended by Presidential Decree No. 1650;