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2 CATBHAR 08 2021
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Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

EIGHTEENTH CONGRESS
Second Regular Session

House Bill No.8938

Introduced by Representative Junie E. Cua
Lone District, Quirino

AN ACT
TO DEEPEN THE CAPITAL MARKET
BY DEVELOPING A ROBUST INSTITUTIONAL INVESTOR BASE
AND STRENGTHENING THE REGULATORY ENVIRONMENT

EXPLANATORY NOTE
The Role of a Robust Capital Market

Developing deep and broad capital markets is an important aspect of nation-building. Capital
markets mobilize savings from households and firms with surplus funds, and channel these to those
sectors with a need for such funds. It provides the link for the direct intermediation of funds from savers
to borrowers through the bond and stock markets, while indirect financial intermediation channels funds
from savers through the banking system. For all these channels, the tasks are to allocate savings to their
most productive uses.

The impact on economic growth via all these channels takes place over several decades and is
not trivial. In fact, the literature provides much evidence of the strong links between financial sector
development and real per capita economic growth. In addition, financial sector development can reduce
verification costs, help alleviate credit rationing, and provide for more efficient government to person
transactions.

Recognizing these benefits, the Government of the Philippines is prioritizing efforts to further
enlarge and deepen the financial sector, and to increase financial inclusion. Broadening our country’s
financial sector is consistent with enhancing financial inclusion and increasing the liquidity of financial
markets. It implies growing the country’s investor base. A wide domestic investor base supports the
development of local currency capital markets. It ensures varied sources of demand by encouraging the
participation of a variety of financial entities (banks, pension funds, insurance companies, mutual
funds), and nonfinancial entities (nonfinancial corporations, retail investors) practicing a variety of
business models, as well as foreign investors,

‘A comparison of the financial sector in the Philippines with other countries suggests ours is
smaller, lacks depth, and is more inaccessible. This is unfortunate, because there are many qualitative
benefits to financial sector development, including; i) improved corporate governance, ii) allowing for
risk mitigation and intertemporal risk sharing, iii) a reduction of liquidity risk, iv) a reduction in trading
costs, v) facilitation of exchange, and vi) specialization and innovation.


But, sadly, the Philippines has a relatively small institutional investor base, and a low level of
assets held by the contractual savings sector (e.g., pensions, insurance companies and mutual funds) as
a percentage of GDP. Contractual savings, and pensions in particular, complement financial sector
development, which drives growth,

Widening Institutional Investor Base

Pension systems around the world are active participants in capital markets. They mobilize
savings that will not be withdrawn until retirement — long-term savings - which are appropriate for
financing productive long-term investments, like infrastructure investment, These investments include
tangible assets (roads, bridges, ports, machinery, factories, commercial buildings, hospitals, and new
housing units) and intangible assets (such as education and research and development) that increase
future prospects for innovation and competitiveness.

Given that pension systems are important sources of productivity-enhancing savings, how these
systems are designed determine their contribution to capital markets development, long-term
investment, improving corporate governance and ultimately, productivity and real per capita economic
growth.

Our current pension system has a problem - itis small, underfunded and inadequate to provide
enough income to support old-age retirement. Our pension assets under management represent just 16%
of Gross Domestic Product (GDP). The Organisation for Economic Co-operation and Development
(OECD) average is 124% of GDP while the non-OECD average is 36% of GDP. Said another way, we
have 1.3 pensions assets per worker. Thailand has 126 pension assets per worker and Singapore has
900,000 pension assets per worker.

The private pension system, which is meant to supplement the Social Security System (SSS)
and Government Service Insurance System (GSIS) pensions, has not developed. It has its own
problems. Foremost of which, is the structure of the law and its implementing regulations. Republic
Act (RA) No. 7641 does not require pensions to be prefunded, hence, pensions are paid out of pocket
rather than built-up over the duration of employment, thus, no pool of investible assets is created. The
pension benefits do not vest until they are sixty (60) years old and on the last day of their employment.
Because pension benefits only vest at their final place of employment, pensions are not portable, and
the employee is at risk in the event of the employer’s bankruptcy. In addition, many are working in the
informal sector which makes it difficult to enforce pension requirements under the current law.

With this as background, there is a need {o reform the private pension fund system. This will
not be easy, but the potential benefits are high not only for our old age citizens but more so for the
development of the capital market

© First, a large domestic institutional investor base will allow us to largely fund our own
development. Demand for treasury securities and corporate bonds will increase
significantly. In addition, professional fund managers can, with the proper incentives,
police the market, thereby increasing the effectiveness of our regulatory regime.

© Second, our country’s real per capita GDP will grow much more rapidly. This means
lower poverty, higher savings rates, greater allocative efficiency in financial markets,
potentially better corporate governance, greater labor supply by more productive workers
responding to higher future retirement benefits, better infrastructure, and less effective
pressure from external fund providers.

© Third, reformed pension system will provide workers with enough income to cover old
age living expenses. This will allow their children to build wealth and break generational
poverty.


No less than the Philippine Constitution mandates that the State shall promote a just and
dynamic social order that will ensure the prosperity and independence of the nation and free the people
from poverty through policies that provide adequate social services, promote full employment, a rising
standard of living, and an improved quality of life for all (Article II, Section 9, 1987 Philippine
Constitution).

Along this line, the Constitution highlights the importance of a viable pension system in the
country, particularly in the grant of various benefits to pensioners or retirees, thus, mandating that:

““The State shall, from time to time, review to increase the pensions and other benefits due to
retirees of both the gove itand the private sectors” (Article XVI, Section 8, 1987 Philippine

Constitution

In the 2020 Melbourne Mercer Global Pension Index (MMGPI), the country’s pension system
had been ranked 36" out of thirty-nine (39) countries. It garnered an index value of 43, the highest score
being 82.6 and, with “A” as the highest, got a grade of “D” (ic. has some desirable features, but also
has major weaknesses and/or omissions that need to be addressed). The index measures each country’s
pension system through the three sub-indices of sustainability, adequacy and integrity. Given these
myriads of issues plaguing our current pension system, we should already be past the phase of diagnosis
and review.

The much-needed reforms to deepen our capital markets by developing a robust institutional
investor base and strengthening the regulatory environment, especially in these pandemic times, is of
crucial importance. We must start the ball rolling by institutionalizing a mandatory, portable, fully
funded, and adequate corporate pension fund system.

And it is demanded of us to act NOW.

In view of the foregoing, passage of this measure is earnestly sought.

a ae 3%
Tunie E. Cua


NEPRPNNVEPEEPE EEE EE
NSGESSRSSESEREBRES cavHMHeHenn

a
Republic of the Philippines
HOUSE OF REPRESENTATIVES

Quezon City, Metro Manila

EIGHTEENTH CONGRESS
Second Regular Session
8938

House Bill No.

Introduced by Representative Junie E. Cua
Lone District, Quirino

AN ACT
TO DEEPEN THE CAPITAL MARKET
BY DEVELOPING A ROBUST INSTITUTIONAL INVESTOR BASE
AND STRENGTHENING THE REGULATORY ENVIRONMENT

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

SECTION 1. Title. - This Act shall be known as the "Capital Market Development Act of 2021”.

SEC. 2. Declaration of Policy. - It is the declared policy of the State to promote a just and dynamic
social order that will ensure the prosperity of the country and free the people from poverty through
policies providing adequate social services, promote full employment, a rising standard of living, and
an improved quality of life for all. Towards this end, the Government shall develop a deep and broad
capital market that shall serve as engine for economic growth and financial inclusion, eventually leading
to the early attainment of such declared policy.

An important component of deepening the capital market is to develop a wide institutional investor base
that could best be achieved by adopting a robust pension fund system. Timely, our pension fund system
has long been due for reform. As old age income support is now among the major social and economic
challenges facing many nations, including the Philippines, itis imperative to institute the much-awaited
reforms in our retirement and pension system.

Thus, this Act seeks to establish a private retirement and pension system that is fully-funded, portable,
more actuarially fair and stable that will enhance the current pension, at the same time, promoting and
encouraging national savings and prudential investments on the part of employees, and in so doing,
vigorously stimulate the development of the capital market, in particular, and contribute to the desired
economic growth of the country, in general.

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

a. Contributor refers to any person or entity, such as the employer, employee, or those availing
under voluntary coverage, making the required contributions to a private pension and retirement
fund under this Act;


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b. Covered Employee refers to any person in the employ of an employer as defined under the Labor
Code, who is compulsorily covered under Section 5 of this Act;

©. Covered Employer refers to any person, natural or juridical, employing the services of the employee
as defined under the Labor Code, who is compulsorily covered under Section 5 of this Act;

4. Early withdrawal refer to any withdrawal, either wholly or partially, made prior to the period
of distribution or vesting as set forth under Section 17 hereof,

©. Employee Pension and Retirement Income (EPRI) Account refers to the pension account created
for the pension owner or EPRI owner under this Act;

£ EPRI Administrator refers to an entity accredited by the Regulatory Authorities that is
responsible for the general administration of the EPRI;

8. EPRI Asset refers to the aggregate of the assets in the EPRI at any one time, including the cash
funds and the EPRI investment products into which they are invested and reinvested, and all
the income earned therefrom;

h. EPRI Custodian refers to a separate and distinct entity unrelated to the Administrator,
accredited by the Regulatory Authorities, that provides services in connection with the
custodianship of funds and securities comprising the EPRI investments. The Custodian shall
operate independently from the Administrator;

i. EPRI Owner refers to the employee owning, holding and maintaining the EPRI under its name
and full control. It shall also refer, unless otherwise indicated, to one under voluntary coverage
as provided under this Act;

j. Investment Manager refers to a regulated person or entity authorized by a Contributor to make
investment decisions for his EPRI Account. As such, it shall assume fiduciary duty and
responsibility for EPRI investments, An Investment Manager shall act with utmost fidelity by
observing policies directed towards confidentiality, scrupulous care, safety and prudent
management of EPRI Assets;

k, Investment Product refers to a unit investment trust fund, mutual fund, annuity contract,
insurance pension products, pre-need pension plan, shares of stock and other securities listed
and traded in a local exchange, exchange-traded bonds or any other investment product or outlet,
which the concerned Regulatory Authorities may allow or accredit. Provided, however, That to
qualify as an accredited EPRI investment product it must be non-speculative, readily
marketable, and with a track record of regular income payments to investors;

1. Voluntary EPRI FUND Owner refers to a person allowed by this act to voluntarily establish an
EPRI Account in his. It shall include, but not limited to, persons specifically excluded from
compulsory or mandatory coverage under Section 5 hereof, as well as self-employed
individuals and individuals in the practice of profession;

m. Start of Employment refers to the first day on which the employee is authorized or required by
the employer to be on duty on the employer's premises or at a prescribed workplace.

ESTABLISHMENT OF EPRI ACCOUNT.

SEC. 4. Establishment of an Employee Pension and Retirement Income Account. — There shall be
established at the start of employment a mandatory, fully funded and portable Employee Pension and
Retirement Income (EPRI) Account. The creation of the EPRI account for the employee shall be the
responsibility of both the employer and the employee.


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‘The EPRI account shall be under the name of the employee bearing the employee’s PhilSys Number
(PSN) under Republic Act 11055. If said PSN is not yet available at the time of the EPRI establishment,
Pension Retirement and Income Number (PRIN) shall be assigned in the interim under the rules issued
by the Regulatory Authorities. Such PRIN shall be changed to PSN upon its availability.

An employee or those voluntarily covered, shall only have one EPRI Account. The EPRI Account shall
be his permanent EPRI account until retirement and shall be owned, maintained, and managed by him
regardless of changes in employment or transfer of employer.

SEC. 5. Compulsory Coverage of Employees and Employers. ~ EPRI shall cover all employees and
employers as defined under the Labor Code of the Philippines and its implementing regulations. It will
also cover, all corporations, whether domestic or resident foreign corporation, general professional
partnerships and such other entities, whether registered or not, having persons under its employ.

The following are not covered under this Act:

a, Employees of the National Govemment and its political subdivisions, including
Government-owned and/or controlled corporations;

b. Domestic workers under Republic Act No. 10361 or the “Domestic Workers Act” or “Batas
Kasambahay”; and

c. Alll those specifically excluded by the Regulatory Authorities in an implementing
regulation.

SEC. 6. Voluntary Coverage. — Self-employed and professionals, as well as those excluded under
Section 5 hereof, may opt for voluntary coverage under this Act. The contributions to the EPRI will be
bore and paid solely by those opting for voluntary coverage. Once under voluntary coverage, all the
provisions of this Act as well as the governing policies, rules and regulations thereof shall equally apply
to them similar to those under compulsory coverage

SEC. 7. Change of Status from Mandatory to Voluntary Coverage. Vice-versa. ~ Any interruption
in the contribution to EPRI account due to changes in the status of the EPRI Owner from mandatory to
voluntary, or vice-versa, shall not cause the termination or cancellation of the EPRI Account. An EPRI
account already established shall continue to exist until vesting or upon the retirement of the EPRI
Owner except in instances as may be determined by the Regulatory Agency under the implementing
regulations.

The changes in status contemplated under this Section shall include:

1. Change in employment from a covered private employer to a non-covered employer,
whether private or government;

2. Change of employment from employed to self-employed;
3. Change from voluntary to mandatory coverage.

4, Other similar situations that will disrupt the contributions, or will change the status of the
EPRI Owner, as may be determined by the Regulatory Authorities in the implementing
regulations.

SEC. 8. EPRI Account Ownership. - The EPRI Account shall be owned, held, and maintained under
the name of the employee and under his sole and full control. The employee, as EPRI Owner, shall
exercise all the complete and unrestricted rights, privileges, discretion and prerogatives as to the
management, investment and maintenance of the EPRI Account during its lifetime and until vesting


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Any income, interest or gains derived from the investment of the EPRI shall form part of the EPRI
Asset as owned or held by the EPRI Owner.

SEC. 9. Mandatory Funding and Contribution. — Both the employee and the employer shall be obliged
to mandatorily contribute to the EPRI Account. The amount of such contribution, which shall be fair,
equitable, affordable, adequate and sustainable, shall be determined by the Regulatory Authorities in an
implementing rules and regulations.

Such amount of contribution shall be subject to a periodic evaluation to determine its actuarial
sufficiency, fairness and sustainability. The review, revisions and adjustments of such contributions,
shall be undertaken by the Regulatory Authorities

SEC. 10. Investments. Default Investment Option. - The EPRI Owner shall make all investment
decisions pertaining to his EPRI Asset but limited to EPRI investments products as defined under
Section 3(j) of this Act.

In the absence of an investment choice made, there shall be a default investment product or products
determined and prescribed by the Regulatory Authorities on which the EPRI shall be invested. This
default option shall be periodically reviewed by the Regulatory Authorities as to investment risks,
profitability and sustainability, and to prescribe a new default option, as and when necessary.

‘The EPRI Owner shall, at his option, appoint an Investment Manager from among the accredited
Investment Managers as defined under Section 3 hereof, to provide financial advice and make sound
and prudent investment decisions on his behalf.

SEC. 11. Retirement Age. - A covered employee upon reaching the age of sixty (60) years but not
beyond sixty-five (65) years, which is hereby declared the compulsory retirement age, shall retire and
avail of the benefits under Section 10 of this Act.

Those persons under voluntary coverage will also be subject to the same conditions relative to the
compulsory retirement age of sixty-five (65) with optional early retirement at age sixty (60).

SEC. 12. Availment and Vesting of Benefits. - Upon reaching the optional or compulsory age under
Section 11 or on any of the instances allowed by the Regulatory Authorities for vesting or termination,
the retiring employee, or EPRI Owner shall be entitled to all the EPRI Assets at the time of vesting or
retirement. Such assets shall include all contributions and all the fruits thereof, including any
investments that have been made out of the EPRI account,

The distribution of benefits shall be made in either lump sum or pension payments, the latter being paid
either for a specific fixed period or a lifetime pension. The choice for the manner of payment as well as.
the payment period shall be made by the EPRI Owner on or before the time of vesting or benefit
availment.

SEC. 13, Mandatory Minimum Benefits. — Other than the benefits under Section 12 hereof, and except
for those covered by the transitory provision, there shall be no required minimum benefits to be vested
to the employee at the time of his retirement.

SEC. 14, Beneficiary. - An EPRI owner can designate his Beneficiary of choice. Upon vesting,
retirement or termination, he/she can assign his/her rights over the EPRI Assets or pension benefits to
whomsoever he/she wishes.

However, if the EPRI owner dies before vesting or termination under Section 12 hereof without
designating a Beneficiary, for purposes of determining the beneficiary, the Laws on Succession of the
New Civil Code of the Philippines shall apply.


An EPRI owner with no compulsory heirs can designate his/her beneficiary or beneficiaries and have
the right to change his/her beneficiaries anytime.

SEC. 18. EPRI Asset Sustainability, Adequacy and Actuarial Fairness. — All the necessary policies
and measures shall be promulgated, implemented and undertaken by the Regulatory Authorities to
ensure that the EPRI Asset shall be adequate and sustainable.

The sustainability of the EPRI Asset shall take into consideration the desired replacement rate as
determined by the Department of Finance (DOF) and Department of Labor and Employment (DOLE)
jointly. The desired replacement rate shall be subject to periodic review and evaluation.

EARLY WITHDRAWAL

SEC. 16. Early Withdrawal; Exceptions. —. Except in cases allowed under this Section, early
withdrawals shall not be allowed.

Early withdrawal or premature termination other than those allowed under Section 12 shall be subject
to penalties under Section 28 hereof. But no penalty shall be imposed on any withdrawal of, or any
portion of, the EPRI Asset for the following purposes:

a, For payment of accident or illness-related hospitalization in excess of thirty (30) days;

b. For payment to an employee who has been subsequently rendered permanently totally
disabled as defined under the Employees Compensation Law, Social Security Law or
Government Service Insurance System Law;

©. Death of EPRI Owner; and
d. For such purposes as may be declared by the Regulatory Authorities.

The transfer of an employee to a non-covered employer such as the government, or on self-employment,
shall not be a ground for early withdrawal or termination. The EPRI account shall remain to be alive
although dormant as to contributions, or at the option of the EPRI Owner, it can be made active under
voluntary coverage, until the date of retirement or vesting period. If the employee subsequently becomes
employed by a covered employer at any time prior to retirement, the EPRI Account shall revert to
mandatory coverage.

TAXATION OF EPRI OR THE FUND

SEC. 17. Tax Treatment. ~ The contributions, income, and benefits made or received under this Act
shall be treated as follows:

a. Taxation of Contributions. - The employer's contribution made under Section 9 of this Act,
shall be allowed as deductible expense of the employer subject to the substantiation
requirements under our National Internal Revenue Code. Such mandatory contributions made
by the employer to the employee's EPRI account shall not also be considered as part of the
employee’s compensation subject to income tax. On the other hand, the employee's
contribution out of his/her compensation received from the employer, shall form part of the
employee’s compensation income subject to income tax.

b. Taxation of Investment Income.- All income of whatever nature eamed by the EPRI,
including interest and gains eared from the placements or investments of the EPRI assets, shall
be exempt from all taxes. In case of transactions subject to Documentary Stamp Tax (DST), the
DST shall be borne by the other party who is not exempt.


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¢. Taxation of Benefits. - All benefits and distributions received by the employee at the time of
vesting or retirement under Section 12 hereof, shall be exempt from all taxes.

At no instance shall the EPRI Account be considered engaged in business subject to VAT or to business
tax under Title IV and V of the National Internal Revenue Code, as amended, notwithstanding the
regularity of its investment activities

REGULATION, SUPERVISON AND ADMINISTRATION OF EPRI OR THE FUND

SEC. 18, Regulatory Authorities. - The EPRI Account created under this Act, including those involved
in the administration, management and custody of its fund and assets, shall be placed under the
regulation, supervision and administration of the Department of Finance (DOF), the Insurance
‘Commission (IC), the Securities and Exchange Commission (SEC), and the Bangko Sentral ng Pilipinas
(BSP), either jointly or singly, as laid down in the succeeding Sections hereof.

For this purpose, the current administrative, supervisory and regulatory authorities and powers of the
Regulatory Authorities are deemed expanded, modified and amended to include the exercise of
administrative, supervisory and regulatory authority over the EPRI accounts constituted under this Act,
including the exercise of quasi-legislative and quasi-judicial powers relative thereto.

All matters and issues under this Act and specifically pertaining to the EPRI Account shall be within
the exclusive jurisdiction of the Regulatory Authorities.

SEC. 19. Functions of the Bangko Sentral ng Pilipinas ~ The BSP shall have the following functions:

1, Formulate, promulgate and implement the needed and required policies, mechanisms and rules,
for matters including, but not limited to:

&. Qualification and disqualification, and accreditation standards of banks, trust entities,
and other entities or individuals to act as Investment Managers, including directors and
officers thereof,

Minimum capital requirement;

Pre-operating requirements of banks to engage in investment management activities;
Conduct of investment management activities;

Reasonableness of fees to be charged by the Investment Manager, including the
imposition of fee cap as may be necessary;

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2. Impose administrative sanctions against banks, or its principal officers and/or majority
stockholders, if found to engage in unauthorized investment management activities;

3. Set basic security deposit requirements for the faithful performance of investment management,
activities and required retained earnings reserved;

4, All other pertinent matters as may be necessary for the full and efficient implementation of this
Act.

SEC. 20. Functions of the Securities and Exchange Commission — The SEC shall have the following
functions:

1. Formulate, promulgate and implement the needed and required policies, mechanisms and rules,
for matters including, but not limited to:

a, Qualification and disqualification, and accreditation standards of licensed investment
company advisers, and other entities or individuals to act as Investment Managers,
including directors and officers thereof;


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b. Qualification and disqualification, and accreditation standards for Administrators and
Custodians, including directors and officers thereof,

c. Reasonableness of fees to be charged by the Administrator and Custodian including the
imposition of fee cap as may be necessary;

d. Minimum requirements imposed on the Administrators as regards inculcating financial
literacy to investors;

e. Record-Keeping, reporting and audit requirement of Administrators and Custodians
pertaining to records for all contributions, earnings and total account balances

Promote financial literacy to EPRI Owners by formulating, promulgating and disseminating
the needed and appropriate intervention such as educational and training materials;

All other pertinent matters as may be necessary for the full and efficient implementation of this,
Act.

See. 21. Functions of the Insurance Commission — The IC shall, in addition to all other powers and
functions vested to and required of it under this law, have the following functions:

1

Formulate, promulgate and implement the needed and required policies, mechanisms and rules
for matters including, but not limited to:

a. Qualification and/or eligibility of EPRI investment products, in coordination with
BSP and SEC;

b. Valuation standards for EPRI investments;

c. Disclosure requirements on the terms and conditions of the EPRI investments;

d. Ascertainment of EPRI Owner's suitability for EPRI products, in coordination with
BSP and SEC;

Determine the amount of contributions of the employer, employee, or those under voluntary
coverage, which shall be subject to periodic review every five (5) years thereafter from the
effectivity of this Act;

Assist and advise the DOF and DOLE of the desired replacement rate at intervals specified
under the rules and regulations to be issued;

Submit reports to DOF and DOLE as may be required by them; and

All other pertinent matters as may be necessary for the full and efficient implementation of this
Act.

ADMINISTRATION and MANAGEMENT OF EPRI

SEC. 22. EPRI Administration and Management. - The administration, management and custody of
the EPRI Account and its Assets shall be undertaken by qualified private companies to act as the EPRI
Administrator which will be chosen by the employee from among those accredited by the Regulatory
Authorities

SEC. 23. Functions of EPRI Administrator. - The EPRI Administrator shall have the following
functions:

1. Oversee, administer, and manage the EPRI Account on behalf of the EPRI Owner;

2. Undertake reporting on contributions made to the account, computing the values of
investments, enforcing EPRI contributions and withdrawal limits, collecting appropriate
taxes and penalties for the government, consolidating reports on all investments, income,


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expenses and withdrawals on the account and ensuring that EPRI contributions are invested
in accordance with the prudential guidelines set by the Regulatory Authorities;

3, Educate the Contributors; and

4, Report to the EPRI Owner as well as to the concerned Regulatory Authorities at designated
regular intervals or periods all the funds, financial transactions and all documents under its
‘management and administration and, if applicable, in its custody

‘The EPRI Administrator, subject to the strict rules and guidelines issued by the Regulatory Authorities,
cannot simultaneously act for the same account as EPRI Custodian, by receiving all the funds and
maintaining custody of such cash and all original securities, evidence of deposits or other evidence of
investment.

The Custodian shall be responsible for receiving all funds in connection with the EPRI, maintaining
custody of all original securities, evidence of deposits or other evidence of investment. The Custodian
is required to report to the Contributor and the concemed Regulatory Authorities at regular intervals all
financial transactions and all documents in its custody under the EPRI.

SEC. 24. Fiduciary Relation and Exercise of Prudence. - The EPRI Administrator and/or Custodian
is at all times deemed to have a fiduciary relationship with the EPRI Owner. The EPRI Administrator
and/or Custodian shall perform his responsibilities and duties and manage, administer and take care of
the EPRI under its management and/or custody with the diligence that a prudent man would exercise in
the conduct of an enterprise of a like character and with similar aims.

SEC. 25. Transparency and Regular Audit. - The EPRI and the EPRI Administrator and Custodian
shall be subject to a regular audit in accordance with the audit and monitoring guidelines promulgated
by the Regulatory Authorities. Policies and measures for complete transparency as promulgated by the
Regulatory Authorities will be adopted, implemented and observed by the EPRI Administrator and/or
Custodian at all times, including about the EPRI and its management, administration and custody as
well as the costs or expenses incurred relative to such management, administration and custody.

TRANSITORY PROVISIONS

SEC. 26. Transition to EPRI. — All pension plans existing at the time of the effectivity of this Act shall
be converted to EPRI: Provided, That, the employee may exercise the option to retain the existing
pension plan within five (5) years from the effectivity of this Act, subject to the approval by the
Regulatory Authorities after compliance with its prescribed rules and regulations; Provided, Further,
that all pension plans shall, within a period of five (5) years from the effectivity of this act, shall be
transferred to EPRI Accounts, and mandatorily covered by this Act.

Any employee who is retiring within the next five (5) years from the effectivity of this Act, and is likely
qualified for the minimum defined benefit under Republic Act (RA) 7641, whether or not covered by a
retirement plan, shall have the following options:

a. To stay under RA 7641 until retirement;

b. To stay with the retirement plan with which he is currently enrolled until his retirement;

c. To be covered by the provisions of this EPRI Act upon its effectivity. Any retirement
benefit, contribution or pension amount that has accrued under RA 7641 or existing

retirement plan shalll be transferred to an EPRI account to be created under his name upon
the effectivity of this Act.


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4. To stay with the retirement plan with which he is currently enrolled but only up to the
effectivity of this Act, and thereafter, to be covered by the provisions of this Act until
retirement or vesting under Section 12 hereof,

FINES AND PENALTIES

SEC. 27. Penalties for Violations of Act.- A fine of not less than Fifty thousand pesos (P50,000,00)
nor more than Two hundred thousand pesos (P200,000.00) or imprisonment of not less than six (6)
years and one (1) day to not more than twelve (12) years or both such fine and imprisonment, at the
discretion of the court, shall be imposed upon any person, association, partnership or corporation, its
officer, employee or agent, who, acting alone or in connivance with others, shall commit the following:

a. Failure of employer to remit the contributions to the EPRI Account;

b. Act as EPRI Administrator/Custodian or Investment Manager or Advisor without being
properly qualified or without being granted prior accreditation by the concerned Regulatory
Authorities;

©. Invest the contribution without any authority from the EPRI Owner, o invest the EPRI in
contravention with the instructions or authorization of the EPRI Owner;

4. Knowingly and willfully make any statement in any application, report, or document
required to be filed under this Act, which statement is false or misleading with respect to
any material fact;

. Misappropriate or convert, to the prejudice of the employee or employer, contributions to
and investments or income from the EPRI;

£. By gross negligence, cause any loss, conversion, or misappropriation of the contributions
to, or investments from, the EPRI; or

g. Violate any provision of this Act or rules and regulations issued pursuant to this Act.

The above penalty shall not preclude the EPRI Owner and the Regulatory Authorities from recovering
from the Administrator, Custodian or Investment Manager the amount misappropriated or lost in
situations covered under (c), (¢) and (f) of this Section. The Regulatory Authorities shall assist, and if
warranted, file the case for recovery, for and on behalf of the owner. Any amount spent by the
Regulatory Authorities to pursue the case shall be reimbursed by the EPRI Owner to be deducted from
the amount recovered.

Likewise, the above penalties shall be without prejudice to whatever civil and criminal liability
provided for under applicable laws for the same act or omission.

SEC. 28. Penalties for Early Withdrawal. Abuse of Tax Exemption and Privileges. - Any EPRI
Owner, who prematurely withdraws from the EPRI Account, unless excepted under Section 17 hereof,
shall refund or pay to the government an amount equivalent to fifty percent (50%) of any amount
withdrawn consisting of income eamed by the fund plus the employer’s contributions,

For purposes of determining the amount subject to penalty, the amount withdrawn less employee
contributions at the time of withdrawal shall be considered the amount subject to the penalty of fifty

percent (50%).
MISCELLANEOUS PROVISIONS

SEC. 29.Non-Assignability and Free from Levy.- Any provision of law to the contrary

notwithstanding, no portion of the EPRI or assets of the EPRI may be assigned, alienated, pledged,

encumbered, attached, gamished, seized or levied upon, by or under any administrative, legal or
equitable process whatsoever.


SEC. 30. Separate Asset. - The EPRI Assets shall be kept separate and not considered assets of the
EPRI Owner, including that of the employee, self-employed or professional, or for purposes of
insolvency and estate taxes.

SEC. 31. Implementing Regulations — The BSP, SEC and IC shall issue a joint implementing
regulations to implement the provisions of this law within six (6) months from its effectivity.

SEC. 32. Separability Clause. - If any provision or part hereof is held invalid or unconstitutional, the
remainder of the law or the provision not otherwise affected shall remain valid and subsisting,

SEC. 33. Repealing Clause.- All laws, decrees, orders, rules and regulations or parts thereof
inconsistent with this Act are hereby amended, repealed or modified accordingly.

SEC. 34. Effectivity.-This Act shall take effect fifteen (15) days following its publication in a
newspaper of general circulation in the Philippines.

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