Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SEVENTEENTH CONGRESS
First Regular Session

House Bill No,__ 4049

Introduced by Rep. JOSE T. PANGANIBAN, JR.
of ANAC-IP Partylist

EXPLANATORY NOTE

The improvement of social protection programs is a core component of President
Rodrigo Roa Duterte’s 10-Point Socio-Economic Agenda. The clamor from among senior
citizens, pensioners of the Social Security System (SSS) and their families for pension
reforms has been long, arduous and overwhelming.

This bill addresses President Duterte’s priority agenda and responds to such
overwhelming clamor that cuts across various sectors in our society. It seeks the payment
of a P2,000.00 across-the-board increase in the monthly pension of around 2.15 million
current and future SSS pensioners. It is only right and just that the pensions of our retirees
should be adjusted upwards so they can buy their groceries and their medicines at today’s
prices. Their families certainly stand to benefit from this proposed measure.

However, the proposed huge jump in pensions will cost SSS a lot. Based on existing
data, about P56 billion for the first year of implementation of the P2,000 pension increase
will be needed, an amount expected to rise as the number of pensioners grow every year.
SSS currently pays benefits to the 2.15 million pensioners who yearly receive 12 regular
monthly pensions and the 13 month pension. The proposal is to pay the P2,000 ATBP
increase in tranches of P500.00 per year starting 1 January 2017 up to 1 January 2020.

In our desire to provide higher pensions for SSS pensioners, we also have to look
after the welfare of the other 34 million SSS members as fiduciaries of the SS Fund in order
to ensure its actuarial soundness.

The SS Fund life is projected to last until 2042 based on the latest actuarial
valuation. It will be drastically cut short by the proposed pension increase. In 2025 or nine
(9) years from now, the SS Fund will be completely dissipated if the funding requirements
for the projected P56 billion annual pension benefit increase will not be identified.

Rationalizing the powers, duties and accountabilities of the Social Security
Commission (SSC)

The nature of the SSS fund being already obligated to future pension disbursements
and the existing SS Fund’s inability to absorb the adverse impact of the popular demand for
pension increase, are sufficient reasons to equip the SSS with the tools to respond to the
social, economic and political challenges confronting it. Thus, the companion proposal to
rationalize the powers, duties and accountabilities of the Social Security Commission (SSC),
the body entrusted by Congress with quasi-judicial authority to direct and control the
actions of the SSS.

This bill seeks to provide the SSC the authority to condone penalties on delinquent
contributions, to determine the monthly salary credits, the schedule and rate of
contributions, benefit increases and the rate of penalty on delinquent contributions and
unpaid loan amortizations, thereby further amending Republic Act No. 1161, as amended,
otherwise known as the Social Security Law.

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The Commission, guided by its fiduciary duty to protect the welfare of SSS members
and the fortitude to exercise extraordinary diligence in the care of the SS Fund, is a collegial
body where the government, the employers, the workers and the general public are well-
represented. All the nine (9) members of the Commission are appointed by the President of
the Philippines for a term of one year and their performance are appraised and evaluated by
the Office of the President through the Governance Commission on GOCCs every year.

The Commission believes that a strong and vibrant social protection system fulfills an
emerging country. This proposed measure will enable the Commission and the SSS to
realize its mandate and reinforce their commitment for a better SSS in the years to come.

Penalty condonation on delinquent contributions

Under Section 22 (a) of the SS Law, a penalty of three percent (3%) a month is
assessed on unremitted contributions. This penalty is burdensome as it continues to accrue
from the date the contribution falls due until paid. As a result, the delinquency, if not
quickly addressed, can really pile up. For troubled companies that, by and large, do not
want to be delinquent in the first place but failed to remit what is due as their employees’
contributions to SSS could easily find themselves in arrears.

It is reported that for a big number of billing or demand letters issued against
employers-members of the SSS, the amount of contribution-delinquency is computed based
‘on presumptive delinquency under Section 22 (d) of the SS Law, and hence not yet final
being subject to reconciliation of records. The Large Account Division of SSS has a
collectible of P1.033 Billion as of 26 May 2014 from delinquent employers. P408 Million is
accounted for by penalties and P625.9 Million is for contributions that are due. By provi
a breathing space, we are actually helping SSS to immediately collect about P625.9 Mi
overdue SS contributions which would otherwise be difficult to collect. It is not a secret that
companies choose not to pay what SSS demands of them because of penalties slapped upon
them that have accumulated through the years which, at times, are actually bigger than the
principal that should have been paid. This measure provides a strong incentive for those
that have been in arrears in the payment of their employees’ contributions to immediately
settle what is due and overdue, minus the huge burden of dealing with the delinquency
penalties. Past SSS condonation experience shows the amount of P3.42 B that was
condoned as penalties while enabling the SSS, at the same time, to collect P3.546B from
24,042 delinquent employers which availed of the program. This amount easily beefed up
the SS Fund and contributed to its stability and viability.

More importantly, this is a welcome development for the privately employed workers
comprising SSS‘ general membership, the self-employed individuals, financially distressed
companies, small and medium businesses, other social enterprises, the contributing
members of the informal sector, the farmers and the fisherfolks, the kasambahays and their
household employers. They can now avail of the privileges of SSS members of good
standing, full benefits and loans, which would otherwise not be available had their
delinquent payments remain unsettled.

This is a three-pronged stimulus package that will benefit all stakeholders of the SSS
in the light of the recent calamities and economic debacles besieging our country, It is
important that the loan privileges of SSS members such as calamity, housing and other loan
packages remain available. This can only happen if contribution payments are up to date.
‘The law will help the SSS, the employers and workers.

To foster public accountability, transparency and good governance, Congress Is not
deprived of its oversight functions because an annual report on the exercise of the proposed
power shall be required to be submitted to both Houses, stating therein the following facts and
information, among others: names and addresses of employers whose penalty delinquencies
have been the subject of compromise or condonation; amount involved; amount compromised
or condoned; and the reason/s for the exercise of power to determine that said powers are
reasonably exercised and that the SSS is not unduly deprived of revenues.

This new provision is patterned from the GSIS Law (Section 43 of RA No. 8291), the
HDME/Pag-Ibig Law (Section 9 of RA No. 9679) and PhilHealth Law (Section 16 of RA No
10606) and the National Internal Revenue Code (Section 204, Chapter I, Title VIII of RA No.
8424).

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X


Under the said laws, the statutory powers which the governing boards of GSIS,
PhilHealth and HDMF can exercise includes the authority to waive, compromise or release,
in whole or in part, any claim, interest or surcharges imposed upon employers regardless of
the amount involved, under such valid terms and conditions. The aim is to replicate and/or
align the SS Law with the Legislative will of Congress as contained and expressed in its
more recent Legislative enactments

Operational details and accounts management are the province of the Commission
and the SSS, the ones entrusted with the mandate of running the affairs of the country’s
social security system including the exercise of discretion and flexibility in managing its own
affairs.

Fixing the monthly salary credits, the schedule and rate of contributions and the
rate of penalty on delinquent contributions and unpaid loan amortizations

What is embodied in Section 18 of the SS Law is an outdated schedule of the social
security contributions and the monthly salary credits that have failed to keep pace with the
changing times. Amendments to the SS Law last introduced in 1997 (now 17 years old) are
no longer reflective of current socio-economic conditions. The minimum monthly salary credit
still pegged at P1,000.00 per month is way below the minimum salary/wage in the private
sector while the maximum salary credit at 16,000.00 per month is a far cry from existing
realities in compensation administration and labor developments.

The SS contribution rate is an altogether different story. Since 1980, the contribution
rate was pegged at 8.4 percent for 23 years, until it was increased by one-percent to 9.4
percent in 2003, to 10.4 percent in 2007 and 11 percent in 2014 to avoid fund depletion.
The contribution rate of the GSIS stands at 21 per cent. Given this, it is timely that
Congress revisits the SS Law and ensure that this provision is responsive to the present-day
realities.

Upon the other hand, across-the-board pension increases of eight to fifty percent
were granted 24 times (the last one in 2007); and the minimum monthly pension was also
increased under the 1997 SS Law Amendment to ®1,200 if with at least 10 Credited Year of
Service (CYS) and to 2,400 if with at least 20 CYS. These pension increases averaged
15,12 percent per year for the period 1972 to 2007 and were often announced on “special
occasions” such as Labor Day in May and the SSS anniversary in September.

It is just unfortunate that while these pension increases averaged 15.12 percent per
year for the period 1972 to 2007 the SS contributions was increased only six times from
1960 to 2014. The heavy strain on the SS Fund being exacted by the increasing benefit
obligations of the SSS to be paid to its members and their beneficiaries has a dire effect on
the fund’s long-term viability. To lighten this load, the SSS, at the same time, carefully
manage benefit payouts and operating expenses to minimize SSS‘ unfunded liability.
Prudent fiscal management coupled with solid investment strategies are continuously being
undertaken as the key drivers toward strengthening the viability of the SS Fund.

SSS initiatives to enlighten more workers on the value of SSS and the importance of
the active membership has helped boost contributions collections, which is the lifeblood of
the SSS Fund, However, the existing contribution set-up does not ensure that SSS can
continuously cover its ballooning unfunded liabilities in the future. To address such concern
and be able to cope with this predicament, something must be done about the SSS
contribution rates and align the same with industry standards and sound international
practices taking into consideration actuarial calculations, rate of benefits, inflation and other
relevant socio-economic indicators.

To live up to the Commission’s full representative capacity where all the stakeholders
and the sectors of the government, the workers, the management and the general public
are well represented, the authority to determine and fix from time to time through rules and
regulations, the minimum and maximum monthly salary credits, the schedule and the rate
of contributions as well as the rate of increase in benefits, without the Presidential approval
requirement, is now being proposed.

Corollary to such power is the authority to review and periodically adjust the rate of
penalty on due but unremitted contributions and unpaid loan amortization taking into

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consideration inflation and other pertinent socio-economic data. This is the logical
consequence as this harmonizes the power to condone, compromise or release, in whole or
in part, such penalties imposed upon delinquent social security contributions regardless of
the amount involved under such valid terms and conditions it may prescribe when the
financial position of the employer demonstrates a clear inability to pay the assessed
delinquency.

As earlier discussed, the proposed bill is aligned with the GSIS Law, the PhilHealth
Charter, the Pag-Ibig Law and the NIRC. The GSIS Law (in Section 43 thereof) expressly
vests upon the GSIS Board of Trustees without need of Presidential approval, the power /)
to fix and periodically review and adjust the rates of interest and other terms and conditions
for loans and credits extended to its members or other persons, ii) to determine, fix and
impose interest upon unpaid or unremitted premiums and/or contributions, and ili) to do
and perform any and all acts necessary, proper or incidental to the attainment of the
purposes and objectives of the GSIS Law.

Also, the PhilHealth Corporation has authority pursuant to Section 16 of its Charter
to i) impose interest and/or surcharges not exceeding three percent (3%) per month, in
case of delay by a public or private employer in the remittance of contributions and ii) to
compromise, waive or release, in whole or in part, such interest or surcharges imposed
upon employers regardless of the amount involved without Presidential approval,
notwithstanding the provisions of any law to the contrary.

‘The Board of Trustees of the HDMF, in the same vein, may waive or suspend the
coverage and/or payment of monthly Pag-Ibig contributions pursuant to Section 9 of the
Pag-Ibig Law without securing approval from the President by reasons of nature of
employment, condition of business, ability to make contributions and other reasonable
considerations.

Similarly, the same statutory powers are also found in the provisions of the RA 8424
granting the BIR Commissioner the authority /) to abate and refund or credit taxes and //) to
compromise the payment of any internal revenue tax, when (1) a reasonable doubt as to
the validity of the claim against the taxpayer exists; or (2) the financial position of the
taxpayer demonstrates a clear inability to pay the assessed tax and the BIR Evaluation
Board in certain instances.

Updating and rationalizing SSC’s investment capabilities

The SS Law was crafted within the backdrop of the 1997 Asian Financial Crisis which
wreaked havoc Asian financial institutions and the global market. The emphasis was given
to the principle of safety ahead of returns and liquidity. This limited asset allocation in risky
assets, limited foreign investments to a mere 7.5% and subjected investment in foreign-
currency debt to triple-A rated papers among other conservative provisions.

‘The current financial environment is more complex with a vaster array of investment
vehicles than in 1997. The number, types, complexity and size of the global financial
markets have vastly increased. SSS charter only covered investment vehicles existent
during that time and investment types such Real Estate Investment Trusts (REITs), Hedge
Funds, Unit Investment Trusts (UITFs), Multi-Asset Funds were not explicitly covered in the
current charter.

The Philippines have become an investment-grade rated sovereignty. This distinction
that resulted to improved financial and crediting standing owed to a large part to the
unwavering influx of overseas Filipino workers (OFW) remittances and the continued
recognition as an outsourcing haven that fuels the unabated growth of business process
outsourcing (BPO) revenues prospers a level of investment safety comfort in the
government and private investments. The drawback however is that, under the trade-off of
return and risks, expected returns are priced lower as empirically witnessed in the low
interest rate environment of the country as well. For example, Philippine 10-year rates have
gone down from double digit rates to a mere 3.50%.

Starting from the US Subprime Crisis of 2008, the financial markets have embarked
‘on a highly liquid status owing to the series of Quantitative Easing (QE) packages spanning
from the US, Europe and Japan that resulted in the current low interest rate environment.

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This pushed global fund managers, fund trustees, plan sponsors and asset owners to take
on higher level of risks to secure added returns without unduly compromising the viability of
their funds. In a survey study conducted by the Economist Intelligence Unit in August 2014
of which respondents from 15 sovereign pension funds participated in the survey, pension
funds will strike a new balance on risk and reward. About 77% of respondents in the survey
foresee an increase in their institution’s investment risk appetite over the next three years.
About 20% expect this increase in risk appetite to be very significant.

A. Inclusion of New Investment Vehicles

1) Project Finance (Section 26-b) - The SSS is not allowed to invest in project
finance for Infrastructure except for projects of government instrumentalities with
government guarantees and/or guarantees of multilateral agencies, The existence of
developments under project finance schemes is expected to expand in the next 6
years with the Private Public Partnership (PPP) projects and with the commitment of
President Duterte Administration under Its economic agenda to jack-up infrastructure
spending to 8% of GDP. If done right, project finance is one of the few investment
vehicles that can still provide double-digit annual internal rates of return (IRR). It
makes sense for SSS to participate in PPP projects to improve its portfolio ROI as
well as to support the economic development of the country. However, such expected
return is not without carrying risks given that project finance in its pure form
sacrifices track record as the structural form of private project finance is through a
special purpose vehicle (SPV) and the “waterfall” cashflows carries high uncertainty
of funding payback. It is this for reason exposure to project finance without
government or multilateral agency guarantee is limited to 10%of the IRF.

2) Real Estate Investment Trusts (REITs) (Section 26-9) - A real estate
investment trust (REIT) is a company that owns income-producing real estate. REITS
own many types of commercial real estate, ranging from office and apartment
buildings to warehouses, hospitals, shopping centers, hotels and even timberlands. It
has become a suitable investment among pension funds, as typically 90% of rental
and sales income are “dividend-out”.

The Philippine has already enacted a REIT Law in 2009 (RA No. 9856), which
primarily aims to promote the development of the country’s capital market,
broadening the participation of the public in the ownership of real estate in the
Philippines. However, stringent IRR rules and tax disincentives barred the law from
being implemented. The Duterte Administration has vowed to review the stifling
provisions of the IRR and be pragmatic about its implementation, cognizant that the
implementation will fuel economic activity more particularly in the real estate sector.
It is for these reasons that REITs be included in Section 26-g under the 5% IRF limit
in lieu of common and preferred stocks in real estate, which is seen to be more aptly
included in the limit of Section-i.

3) Private Equity and Collective Investment Schemes (Section 26-j) - Owing to
the conservative provisions in SSS Charter, SSS can only invest in listed equities.

However in the last two decades, investment in private equity among pension funds
has started to flourish. In a survey study conducted by the Economist Intelligence
Unit in August 2014 of which respondents from 15 sovereign pension funds
participated in the survey, about 66% of the respondents in the survey say they will
increase allocations into private equity. The traditional drivers of pension investment
in private equity include statistical diversification stemming from partial uncorrelation
to listed securities and expectation of superior risk-adjusted returns over long
periods (typically 8 to 10 years). However, the major drawback to private equity
investments is the concern of lack of liquidity or a viable exit mechanism. To remedy
this wearisome consideration, it is proposed that private equity investment be
allowed under the SS Charter but only through a collective investment scheme
normally under a private equity mutual fund.

While in spirit, the current charter recognizes investments in “pooled funds” or
“diversified investments” under Section 26-j, it would be more accurate to refer to
these investments as “Collective Investment Schemes” than just Mutual Funds (as
Mutual Funds is just one form of a Collective Investment Scheme, others include a
Trust Scheme). These include among others:

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+ Private Equity Funds
+ Feeder Funds

* Funds of Funds

+ Multi-Asset Investment Strategy Funds

B, Asset Allocation Changes

if,

Increase in Private Securities from 40% to 60% (Section 26-i) - Increase in
Equities Investment (Common Stocks, Preferred Stocks and Related Investments)
from 30% to 40% and Increase in Corporate Bonds from 30% to 40%

SSS’ actuarial rate of return is about 11% and in the 2014 SSS Actuarial Valuation,
which estimated a fund life of 2042, the imputed ROI on investments is 6.7%. Thus,
the only way to come close to these returns and promote the viability of fund life is
through investment in riskier assets, which include private equities and bonds that
secure return premium from risk-free investments.

In the Global Pension Assets Study 2016 by Towers Watsons where it surveyed the
pension funds of G7 countries, average exposure in equities ranged from 52% in
1996 to 44% in 2015 of fund portfolio. Exposure in equities has been declining over
the years but this is as a result of exposure in high-yielding and more risky
alternative investments (private equity, infrastructure, etc). The proportion to
equities is still above the limit of SSS. It can only be surmised that exposure in
smaller and less developed pension funds, including the Philippines, would have a
higher equities exposure given the higher growth requirements of their pension
needs.

Decrease in Housing Loans from 35% to 20% (Section 26-e) - The reduction
in the ceiling for SSS investments in housing loans from 35% to 20% of the IRF is
justified by the following:

«SS is not a shelter agency. SSS’ mandate is to provide social protection to
its members. In the 1980's and 1990's, the SSS, together with the Government
Service Insurance System (GSIS), was tapped as a major source for housing
funds, leading to its enduring association with the housing sector, However, it
must be remembered that housing loans is only one of several allowable
investment outlets of SSS. While it made sense in the past for SSS to be heavily
invested in housing, this is no longer the case today. First, the Home
Development Mutual Fund (HDMF) has stepped in to fill the role as the foremost
government institution for housing finance. Second, the change in the investment
landscape has enabled SSS to engage In other more financially rewarding
investment options that will ultimately better serve to help the institution's vision
of financial viability and to build and extend the life of the Social Security Fund.

«SSS! actual experience with shelter agencies have been problematic.
SSS’ support to government housing programs through the Home Guaranty
Corporation (HGC) and National Home Mortgage Finance Corporation (NHMFC)
had become problematic due to their inability to service their loan obligations to
SSS. SSS claims versus HGC is already subject of arbitration case filed with the
Office of the Government Corporate Counsel (OGCC) in 2013. Outstanding
guaranteed obligations amount to P6.3 Billion as of end-Jun 2016.

SSS claims versus NHMFC relate to the latter's inability to service its loan
obligations by a monthly average of about P50 Million since May 2013 (or
accumulated total deficiency of about P1.8 Billion as of end-Jun 2016). Total
outstanding obligation as of end-Jun 2016 is about P23.3 Billion.

+ New ceiling is more attuned to current situation and still provides a
comfortable margin. An adjustment in the allowable ceiling takes into account
the growth of the investment funds in the past 20 years. Relative to the total
amount of investment reserve levels charted in the past, determination of the
housing ceiling probably took into consideration the actual exposure of SSS in
housing loans at its height (1986-99). However, with the growth of the SS Fund,
sticking to the same ceiling is no longer necessary. The IRF stands at about P470

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Billion today. If we apply the same ceiling, it means SSS potentially can invest as
much as P165 Billion in housing loans which is not justified particularly since SSS
is not purely a key shelter agency. Current SSS investment in housing loans is
placed at P12 Billion, representing less than 5% of the IRF. Notwithstanding the
reduction in the ceiling, there is still adequate room for SSS to put money into
housing should the future situation lead SSS to decide to do so.

3, Increase in Member Loans from 10% to 20% (Section 26-e) - As of June
2016, SSS investment in short and medium term loan amounts to P70.2 Billion,
15.36% of IRF of P456 Billion, a breach of 5.36% over limit of 10% or ceiling of
P45.6 Billion. For the last 5 years since 2010, the average % of short and medium
term loans versus IRF is almost 16%, or a breach of 6% annually. SSS short and
medium term loans are comprised of salary loans, emergency loans and other loans
offered by SSS. Average salary loan amounts to P20,000 with the highest loanable
amount of P32,000 or two times the maximum salary credit. It is payable in 2 years
charged with 10% per annum interest rate. The following justifies an increase in the
SSS Charter investment limit concerning short term and medium term loans:

«Increase in Member-Borrowers Served. There is an average 19% increase
year-on-year in number of member-borrowers who availed SSS short and
medium term loans since 2010. In 2010, salary loan releases amounted to
P11.28 Billion serving 803,000 borrowers. This increased four times in June
2016, as releases ballooned to P43.7 Billion with 2.2 Million borrowers.

The increasing trend in loan availment is supported by the increase in total
number of member-borrowers from 7.1 Million in 2010 to 8.6 Million in June
2016. The increase in loan availment also shows the increasing trend in members
who are actively paying their SSS contributions.

* Salary Loans, Among the Most Popular Privilege of an SSS Member. Easy
access to salary loans by actively paying SSS members prove to be a credit
advantage for those who are in need for ready cash at reasonable rate of return
of 10% per annum. Almost half of SSS branch and online transactions are salary
loan applications prompting the need to manage this increasing usage by SSS
members, loan processing being one of the important services offered by SSS to
its members.

+ Interest Rate is Reasonable to Members and Attractive to SSS. SSS Salary
loans are charged with 10% per annum, this is considered to be reasonable
compared to banks salary loans or credit card transactions, which charge
effective monthly interest rate of 2-3%. Moreover, the 10% ROI is guaranteed
even with delinquencies, as delinquencies are covered by compounding interest
that are charged terminally at pension inception. Barring any aggressive
condonation programs of the government, it can be said that Member Loans, as
an investment is a major income and ROI contributor to the SSS IRF. With the
increase in the maximum loanable amount for salary loans from P24,000 in 2010
to P36,000 at present, the short-term loan portfolio of SSS continues to grow.

* Other Loan Programs. In 2013, SSS introduced a medium term loan of
Educational Assistance Loan Program (EALP) specifically to cater to SSS members
for their college education requirements. The latter has a portfolio of P7 Billion
with 50% funding coming from the national government and contributes in the
increase of SSS’ loan portfolio. The EALP is a medium term loan with term of 3-5
years at 3% per annum. It is popular to member borrowers because of the great
help in funding their college education or of their beneficiaries at affordable rate.
As of now EALP has served 500,000 member borrowers.

C. Amendments to the Provision on Foreign Investments (Section 26-k) ~ From the
Charter limit of 7.5 % of the IRF, increase in foreign investments is being raised to 20%
of the IRF with a gradual increase of 1% per year until it reaches limit. The gradual
increase which allows for the ramp-up exposure spanning a typical business cycle of
about 7-8 years thereby spreading pricing risk, is being propose on the strength of the
foregoing:

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1) Increase in Exposure from 7.5% to 20% (retain gradual exposure at
2.5% increase per year). While all of SSS’ assets are currently still invested
domestically, conscious efforts have been made to prepare the inevitable that one
day local market returns and the need for diversification will propel for foreign
investments. The outsourcing of local fund managers and the setting up of an
Investment Management System (IMS) are all major steps towards this end.
SSS’ advances into the foreign markets have lagged most pension funds in the
world, including that of its government counterpart in the Philippines, the GSIS.
Foreign investments not only provides an improved menu that would expand the
efficient frontier (return and risk profiles) of pension fund portfolios, it all also
promotes the transfer of technology through counterparties’ investor services

In an Organization for Economic Cooperation and Development (OECD) study
“Annual Survey of Large Pension Funds and Public Pension Reserve Funds: Report
on Pension Funds ‘ Long-Term Investments 2014”, the large pension funds in the
world on average invest 36.6% of total assets in foreign markets while for public
pension funds it is 31.6%. Foreign diversification is mostly the result of regulation
and investment policy, although funds based in countries with small domestic
markets, including the Philippines, may be more inclined to invest abroad to
diversify and increase their opportunity sets. Foreign alternatives such as real
estate, private equity and infrastructure and emerging market investments are
part of the foreign allocations. This trend has been increasing as cross-border
investment barriers continue to dissipate through technological advances and
global economic cooperation.

2) Foreign-Currency Debts from Triple-A Rated to Investment-Grade Rated.
The low interest rate environment and the current phenomenon of low global
growth gave rise to a scenario of even negative interest rates. Thus, investment
in foreign-currency investments in triple-A rated global debts have become
unsuitable to the SSS pension investing as returns to be achieved would have to
be eroded by inflation (2.5% - 3% currently).

3) Foreign-Currency Non-Speculative Equities, Dividend Requirement to

Once in the Past 3 Years. Similar to domestic equities requirement, the
idend requirement is paralleled to “once in the past 3 years” as consistent
ividend payment in the past 3 years will be too restrictive and limit investment
in equities to mature and even sunshine industries and lead to the missing out on
high trajectory growth companies.

Based on the foregoing, therefore, the proposed SSS Charter Amendments are being
put forward for the cause of the 34 million SSS members here and around the world. These
reforms were never conceived to be a panacea, but rather a movement towards strengthening
this institution.

It is in this context that the early passage of this bill is earnestly sought,

PANGANIBAW(JR. CPA, Lib
Rg [AC-IP Partylist

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SSeIARTD EGS SCM d sHAawnVne

DORKS nae

Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SEVENTEENTH CONGRESS
First Regular Session

4049

House Bill No.

Introduced by Rep. JOSE T. PANGANIBAN, JR.
of ANAC-IP Partylist

AN ACT MANDATING A TWO-THOUSAND PESO (P2,000.00) ACROSS-THE-BOARD
INCREASE IN THE MONTHLY PENSION OF SSS MEMBER-PENSIONERS AND
RATIONALIZING THE POWERS, DUTIES AND ACCOUNTABILITIES OF THE SOCIAL
SECURITY COMMISSION (SSC), FURTHER AMENDING FOR THE PURPOSE REPUBLIC
ACT NO, 1161, AS AMENDED BY REPUBLIC ACT NO. 8282, OTHERWISE KNOWN AS
THE SOCIAL SECURITY ACT OF 1997

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

SECTION 1. Any law to the contrary notwithstanding, a two-thousand peso
(P2,000.00) across-the-board increase in the monthly pension of current and future SSS
pensioners shall be implemented by the social security commission in tranches of P500.00 per
year starting 1 January 2017 and every January 1 of the succeeding year up to year 2020, as
follows:

First year of implementation: - existing pensioners shall be paid P500.00 in addition to
the pension they are currently receiving while new pensioners shall be paid P500.00 in
addition to the pension they are entitled to as determined in accordance with section 12 of the
SS law.

Second year of implementation: existing pensioners shall be paid P500.00 in addition to
the pension they are currently receiving while new pensioners shall be paid P1,000.00 in
addition to the pension they are entitled to as determined in accordance with section 12 of the
SS law.

Third year of implementation: existing pensioners shall be paid P500.00 in addition to
the pension they are currently receiving while new pensioners shall be paid P1,500.00 in
addition to the pension they are entitled to as determined in accordance with section 12 of the
SS law.

Fourth year of implementation: existing pensioners shall be paid P500.00 in addition to
the pension they are currently receiving while new pensioners shall be paid P2,000.00 in
addition to the pension they are entitled to as determined in accordance with section 12 of the
SS law.

For succeeding years thereafter, all new pensioners shall be paid P2,000.00 in addition
to the pension they are entitled to in accordance with section 12 of the SS law,

For every P500.00 pension increase, as provided above, a 1.5% upward adjustment in
the contribution rate shall be implemented or a total of 6% contribution rate increase to cover
the entire P2,000.00 pension hike. The contribution rate increase shall be equally shared by
the employer and the employee members.

The pensions maybe further increased by the social security commission after the
implementation of the p2,000.00 pension increase subject to section 4, paragraph (b) sub-
paragraph (2) of the SS law, as amended.

SECTION 2. Section 4, paragraphs (a) and (b) of Republic Act No. 1161, as amended,
otherwise known as the “Social Security Law", is hereby further amended to read as follows:


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“SEC. 4, Powers and Duties of the Commission and SSS. - (a) The Commission.
- For the attainment of its main objectives as set forth in Section 2 hereof, the Commission
shall have the following powers and duties;

(2) To establish a provident fund for the members which will consist of voluntary
contributions of employers and/or employees, self-employed and voluntary members and their
earnings, for payment of benefits to such members or their beneficiaries, subject to such rules
and regulations as it may promulgate;

(6) To compromise or release, in whole or in part, any interest, penalty or any civil
liability to SSS in connection with the investments authorized under Section 26, hereof, under
such terms and conditions as it may prescribe;

(7) Any law to the contrary notwithstanding, to condone, enter into compromise or
release, in whole or in part, penalties imposed upon delinquent social security contributions
regardless of the amount involved under such valid terms and conditions it may prescribe
when the financial position of the employer demonstrates a clear inability to pay the assessed
delinquency.

The commission shall submit to both the senate and house of representatives of the
Philippines an annual report on the exercise of the powers under this provision, stating therein
the following facts and information, among others: names and addresses of employers whose
penalty delinquencies have been the subject of compromise or condonation; amount involved;
amount compromised or condoned; and the justifications thereon to determine that sald
powers are reasonably exercised and that the SSS is not unduly deprived of revenues;

(8) To determine and fix from time to time through rules and regulations, the
minimum and maximum monthly salary credits of member-employees, the schedule and the
rate of contributions of employers and member employees, the rate of penalty on due but
unremitted contributions of employers and member employees and unpaid loan amortizations
of its members taking into consideration actuarial calculations, rate of benefits, inflation and
other relevant socio-economic data: provided that in no case shall the increase In the rate of
contributions exceed 3% per year, and;

(9) To approve, confirm, pass upon or review any and all actions of the SSS in the
proper and necessary exercise of its powers and duties hereinafter enumerated.

(b) The Social Security System - Subject to the provision of Section Four (4),
paragraph (a), sub-paragraph 9 (nine) hereof, the SSS shall have the following powers and
duties:

(2) To require the actuary to submit a valuation report on the SSS benefit program
every four (4) years, or more frequently as may be necessary, and to undertake the
necessary actuarial studies and calculations concerning increases in benefits taking into
account inflation and the financial stability of the SSS and to provide increases in benefits,
including the addition of new ones, under such rules and regulations as the Commission
may adopt, subject to the actuarial soundness of the reserve fund;

SECTION 3. Section 18, paragraph (a) of Republic Act No. 1161, as amended,
hereby deleted and a new paragraph shall be introduced to read as follows:

is

“SEC, 18, Employee's Contribution. - beginning as of the last day of the
calendar month when an employee's compulsory coverage takes effect and every
month thereafter during his employment, the employer shall deduct and withhold
from such employee's monthly salary, wage, compensation or earnings, the
employee's contribution in an amount corresponding to his salary, wage,
compensation or earnings during the month in accordance with the monthly salary
credits, the schedule and the rate of contributions as maybe determined and fixed by
the commission.

the monthly salary credits, schedule and rate of contribution shall also apply
to self-employed and voluntary members.

SECTION 4. Section 22, paragraph (a) of Republic Act No. 1161, as amended, is
hereby further amended to read as follows:


Se BRD EBNI SCH aUAwNH

“SEC. 22. Remittance of Contributions. - (a) The contribution imposed in the
preceding section shall be remitted to the SSS within the first ten (10) days of each
calendar month following the month for which they are applicable or within such time as the
Commission may prescribe. Every employer required to deduct and to remit such
contributions shall be liable for their payment and if any contribution is not paid to the SSS
as herein prescribed, the delinquent employer shall pay besides the contribution a penalty
thereon from the date the contribution falls due until paid. the rate of the penalty on
delinquent contributions per month shall be determined and fixed by the commission
through rules and regulations taking into consideration the current inflation rate and other
relevant socio-economic data. if deemed expedient and advisable by the Commission, the
collection and remittance of contributions shall be made quarterly or semi-annually in
advance, the contributions payable by the employees to be advanced by their respective
employers: Provided, That upon separation of an employee, any contribution so paid in
advance but not due shall be credited or refunded to his employer.”

SECTION 5.Section 26 of Republic Act No. 1161, as amended, are hereby further
amended to read as follows:

“SEC. 26. Investment of Reserve Funds. - All revenues of the SSS that are not
needed to meet the current administrative and operational expenses incidental to the
carrying out of this Act shall be accumulated in a fund to be known as the “Reserve Fund”.
Such portions of the Reserve Fund as are not needed to meet the current benefit obligations
thereof shall be known as the “Investment Reserve Fund” which the Commission shall
manage and invest with the skill, care, prudence and diligence necessary under the
circumstances then prevailing that a prudent man acting in like capacity and familiar with
such matters would exercise in the conduct of an enterprise of a like character and with
similar aims. Pursuant thereto, and in line with the basic principles of safety, good yield and
liquidity, the Commission shall invest the funds to earn an annual income not less than the
average rates of treasury bills or any acceptable market yield indicator in any of the
following under such rules and regulations as may be prescribed by the
commission: provided, that investments shall satisfy the requirements of liquidity,
safety/security and yield in order to ensure the actuarial solvency of the funds of the SSS;

(b) In bonds, securities, promissory notes or other evidence of indebtedness of the
Government of the PI les or any of its agencies or instrumentalities to finance
domestic infrastructure projects such as roads, bridges, ports, telecommunications, and
other similar projects: Provided, That the instrument issued by an agency or instrumentality
of the government shall be guaranteed by the Government of the Philippines or any
government financial institution or acceptable multilateral agency :Provided, further, That
the SSS shall have priority over the revenues of the projects: Provided, That such
investments shall not exceed thirty percent (30%) of the Investment Reserve Fund; or in
bonds, securities, promissory notes, other evidence of indebtedness or equity investments
in private sector infrastructure or development projects normally financed, constructed,
operated and maintained by the public sector but which will be wholly or partly implemented
by the private sector, including but not limited to, power plants, highways, ports, airports,
canals, dams, hydropower projects, water supply, irrigation, telecommunications, railroads
and railways, transport systems, toll ways, land reclamation projects, industrial estates or
townships, housing, government buildings, tourism projects, markets, slaughterhouses,
warehouses, solid waste management, information technology networks and database
infrastructure, sewerage, drainage, dredging and other infrastructure and development
projects undertaken through contractual arrangements; provided, finally that such
investments in private sector infrastructure or development projects shall not exceed
ten per cent (10%) of the investment reserve fund;

(e) In bonds, securities, promissory notes or other evidence of indebtedness of
shelter agencies of the National government or financial intermediaries to finance housing
loans of members; and in long-term direct individual or group housing loans giving priority
to the low-income groups, up to a maximum of ninety percent (90%) of the appraised value
of the properties to be mortgaged by the borrowers; and

In short and medium term loans to members such as salary, educational, livelihood,
marital, calamity and emergency loans: Provided, That not more than twenty (20%) of the
Investment Reserve Fund at any time shall be invested for housing
purposes: Provided, further, That not more than twenty percent (20%) of the Investment
Reserve Fund shall be invested in short and medium term loans;


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(g) In real estate property, including shares of stocks involving real estate
property, Real Estate Investment Trusts (REITs) and investments secured by first
mortgages on real estate or other collaterals acceptable to the SSS: Provided, That such
projects and investments shall, in the determination of the Commission, redound to the
benefit of the SSS, its members, as well as the general public: Provided, further, That
investment in real estate property, excluding shares of listed stocks involving real estate
property shall not exceed five percent (5%) of the Investment Reserve
Fund: Provided, finally, That investments in other income-earning projects and Investments
secured by first mortgages or other collaterals shall not exceed twenty-five percent (25%)
of the Investment Reserve Fund;

(h) In bonds, debentures, securities, promissory notes or other evidence of
indebtedness of any prime corporation or multilateral institution to finance domestic
projects: Provided, That the issuing or assuming entity or its predecessors shall not have
defaulted in the payment of interest or any of its securities and that during each of any
three (3) including the last two (2) of the five (5) fiscal years next preceding the date of
acquisition by the SSS of such bonds, debentures or other evidence of indebtedness, the net
earnings of the issuing or assuming institution available for its fixed charges, as defined in
this Act, shall have been not less than one and one-quarter times the total of its fixed
charges. for such year: Provided, further, That such investments shall not
exceed forty percent (40%) of the Investment Reserve Fund;

(i) In preferred or common shares of stocks listed or to be listed in the stock
exchange or options or warrants to such stocks. also, subject to prior approval of
the Bangko Sentral ng Pilipinas, in such other risk management instruments of any prime or
solvent corporation or financial institution created or existing under the laws of the
Philippines with proven track record of profitability over the last three (3) years and
payment of dividends at least once over the same period. Provided, that such investments
shall not exceed forty percent (40%) of the Investment Reserve Fund;

() In domestic or foreign collective investment schemes in the form of
Unit Investment Trust Funds (UITFS) or mutual funds such as among others private equity
funds, hedge funds, Exchange Traded Funds (ETFs), feeder funds and fund of funds in
existence for at least three (3) years: provided, that such investments shall not
exceed twenty (20%) of the investment reserve fund: provided further; that investments in
foreign mutual funds shall not exceed two and a half percent (2.5%) of the investment
reserve fund in the first year which shall be increased by two and a half percent (2.5%) for
each succeeding year, but in no case shall it exceed twenty percent (20%) of the
Investment Reserve Fund;

(k) In foreign currency deposits or investment-grade rated foreign currency-
denominated debts, prime ~—and_-—snon-speculative equities, and
other Bangko Sentral ng Pilipinas approved financial instruments or other assets issued in
accordance with existing laws of the countries where such financial instruments are
issued: Provided, That these instruments or assets are listed in bourses of the respective
countries where these instruments or assets are issued: Provided, further, That the issuing
company has proven track record of profitability over the last three (3) years and payment
of dividends at least once over the same period: Provided, finally, That such
investments shall not exceed two and a half percent (2.5%) of the Investment Reserve
Fund in the first year which shall be increased by two and a half percent (2.5%) for each
succeeding year, but in no case shall it exceed twenty percent (20%) of the Investment
Reserve Fund;

No portion of the Investment Reserve Fund or income thereof shall accrue to the
general fund of the National Government or to any of its agencies or instrumentalities,
including government owned or controlled corporations, except as may be allowed under
this Act: Provided, That no portion of the International Reserve Fund shall be invested for
any purpose or in any instrument, institution or industry over and above the prescribed
cumulative ceilings as follows:

60% in private securities

20% in housing

30% in real estate related investments

20% in short and medium-term member loans

30% in government financial institutions and corporations
30% in infrastructure projects

10% in private infrastructure projects



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20% in collective investment schemes
15% in any particular industry
20% in foreign-currency denominated investments

SECTION 6. Implementing Rules and Regulations. The Commission shall
promulgate the necessary rules and regulations to implement this Act not later than ninety
(90) days after its effectivity.

SECTION 7. Separability Clause. If any provision of this Act is declared invalid, the
other provisions not affected thereby shall remain valid.

SECTION 8. Repealing Clause. All laws, decrees, orders, rules and regulations and
other issuances or parts thereof which are inconsistent with the provisions of this Act are
hereby repealed or modified accordingly. Republic Act No. 1161 as amended, is further
amended accordingly.

SECTION 9. Effectivity. - This Act shall take effect fifteen (15) days after its
publication in the Official Gazette or in a newspaper of general circulation.

Approved,