The Supreme Court upheld the Social Security System (SSS) premium hike implemented in January 2014, confirming its validity and dismissing claims of unlawful delegation of power and undue oppressiveness. This decision reinforces the SSS’s authority to ensure the financial stability of the social security system while balancing the interests of its members. The court emphasized the importance of actuarial soundness and the State’s policy to provide meaningful protection to members against various hazards.

SSS Contribution Conundrum: Can the Government Increase Premiums to Protect the Fund?

The heart of the matter lies in the 2014 SSS premium hike, which increased members’ contribution rates from 10.4% to 11% and raised the maximum monthly salary credit from ₱15,000.00 to ₱16,000.00. Kilusang Mayo Uno, along with other labor groups, challenged these issuances, arguing that they stemmed from an unlawful delegation of power to the Social Security Commission (SSC) and constituted an invalid exercise of police power. They claimed that the increase was unduly oppressive to the labor sector and violated the Social Security Act. To fully understand the Court’s decision, one must delve into the concept of judicial review.

At the forefront of this legal challenge is the question of whether the courts can exercise their power of judicial review. The 1987 Constitution empowers the judiciary to settle actual controversies and determine grave abuse of discretion by any government branch. The petitioners assert that the SSS and SSC acted beyond their powers, violating constitutional rights. Central to this inquiry is the existence of an actual case or controversy, a cornerstone for judicial intervention. This principle ensures that courts address real conflicts involving legally demandable rights, avoiding abstract or theoretical issues.

An actual case requires a conflict of legal rights susceptible to judicial resolution. Petitioners argued that the premium hike violated their rights as workers, protected under the Constitution. However, the Court found that they failed to demonstrate how these issuances specifically infringed upon their constitutional rights, particularly lacking proof of legal entitlement to a fixed contribution amount and proportion. As such, the case also touches on the doctrine of exhaustion of administrative remedies. In cases involving administrative agencies, courts generally require that all available remedies within the agency be exhausted before judicial intervention is sought.

The Social Security Act explicitly grants the SSC jurisdiction over disputes related to coverage, benefits, and contributions. Before seeking judicial review, parties must exhaust all administrative remedies before the SSC. In this case, the petitioners bypassed this process, failing to present their grievances to the SSC for resolution. The principle of primary administrative jurisdiction further underscores this point. When an administrative tribunal possesses jurisdiction over a controversy, courts should defer to its expertise, especially when the matter demands specialized knowledge and administrative discretion. The SSS Act clearly defines the qualifications of its members and their powers and duties.

While the issue of the assailed issuances’ validity may be rendered moot by new resolutions for SSS members’ contributions, the Supreme Court recognized exceptions that warrant ruling on moot issues, including grave constitutional violations, paramount public interest, and the need for guidance on the SSC’s power to increase contributions. Moreover, the petitioners raised violations of constitutional rights. The situation is of paramount public interest, as it affects millions of Filipinos working here and abroad. The issue is also capable of repetition yet evading review, as it involves a question of law that can recur.

The Supreme Court addressed the issue of legal standing, requiring a personal and substantial interest in the case. Some petitioners, as SSS members directly affected by the premium hike, clearly possessed the requisite standing. While other petitioners, such as labor organizations, did not demonstrate direct injury, the Court relaxed the standing requirement due to the transcendental importance of the issue. The Court’s decision hinged on the validity of the delegation of power to the SSC under the Social Security Act. Petitioners argued that Section 18 of the Act provided vague and unclear standards, rendering the delegation unlawful.

The Court, however, rejected this argument, emphasizing that the law was complete in its terms and contained a sufficient standard. Valid delegation requires completeness of the statute and the presence of a sufficient standard. The Act specifies factors for the SSC to consider, such as actuarial calculations and the rate of benefits, subject to Presidential approval.

Section 18 of the Social Security Act states:

SECTION 18. Employee’s Contribution. — (a) 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 minimum and maximum monthly salary credits as well as the rate of contributions may be fixed from time to time by the Commission through rules and regulations taking into consideration actuarial calculations and rate of benefits, subject to the approval of the President of the Philippines.

The application of actuarial calculations in the operation of a social security system scheme requires the determination of benefits. This aligns with the expertise required for social security systems. The argument against the increase in contributions was rooted in Section 4(b)(2) of the Social Security Act, which states that increases in benefits should not require any increase in the rate of contribution.

The Court clarified that the contribution rate increase was not solely for increased benefits but also to extend the actuarial life of the SSS fund. This broader purpose aligns with the State’s policy of maintaining a sound and viable social security system. As stipulated in Social Security Commission Resolution No. 262-s.2013:

RESOLVED, That the Commission approve and confirm, as it hereby approves and confirms, the SSS 2013 Reform Agenda… which aims to address SSS’ unfunded liability, extend SSS’ fund life to a more secure level and provide improved benefits for current and future generations of SSS members…

The Court rejected the claim that the contribution increase was an invalid exercise of police power, emphasizing the State’s authority to enact legislation promoting the general welfare. To be a valid exercise of police power, there must be a lawful subject and the power is exercised through lawful means. The means employed must also be reasonably necessary for the accomplishment of the purpose and not unduly oppressive upon individuals. A 0.6% applied increase to the contribution rate did not scream of unreasonableness or injustice.

Petitioners also contested the revised ratio of contributions between employers and employees. The Court declined to intervene, noting that no law mandates a specific contribution ratio. The increase in contribution was meant to extend actuarial life, implying that the amount the SSS had then might not be enough to cover all liabilities. Overall, the increase was reasonably necessary and was an appropriate response to the SSS’s need to secure its financial stability and to meet its mandate of providing social security protection.

FAQs

What was the key issue in this case?	The central issue was the validity of the Social Security System (SSS) premium hike implemented in January 2014, which increased contribution rates and the maximum monthly salary credit. The petitioners challenged the increase, alleging unlawful delegation of power, violation of workers’ rights, and invalid exercise of police power.
What did the Supreme Court rule?	The Supreme Court upheld the validity of the SSS premium hike, dismissing the petition for lack of merit. The Court found that the Social Security Act contained sufficient standards for the Social Security Commission (SSC) to set contribution rates and that the increase was reasonably necessary to ensure the system’s financial stability.
What is the doctrine of exhaustion of administrative remedies?	The doctrine requires parties to exhaust all available remedies within an administrative agency before seeking judicial review. In this case, petitioners were required to present their grievances to the SSC before appealing to the courts.
Why is actuarial soundness important to the SSS?	Actuarial soundness ensures that the SSS has sufficient funds to meet its future obligations to its members. The Court recognized that the premium hike was intended to extend the SSS fund’s life, addressing unfunded liabilities.
What constitutes unlawful delegation of power?	Unlawful delegation occurs when a law lacks completeness or provides insufficient standards for an administrative agency to exercise its delegated authority. The Court found that the Social Security Act provided sufficient guidelines, such as actuarial calculations and the rate of benefits.
What is police power?	Police power is the state’s authority to enact laws that may interfere with personal liberty or property to promote the general welfare. The increase in contribution was reasonably necessary to observe the constitutional mandate of promoting social justice under the Social Security Act.
Did the Court find the increase in contributions to be unduly oppressive to the labor sector?	No, the Court did not find the increase to be unduly oppressive. It determined that the contribution hike was reasonably necessary and did not constitute a violation of workers’ rights.
What is the significance of the Social Security Act in this case?	The Social Security Act provides the legal framework for the SSS and its operations, including the power of the SSC to set contribution rates and the conditions under which it can do so. The Court relied heavily on the provisions of this Act in its analysis.

The Supreme Court’s decision affirms the Social Security System’s authority to implement necessary measures for the sustainability of the social security system. By upholding the premium hike, the Court recognized the importance of balancing the interests of workers with the long-term viability of the SSS. For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Kilusang Mayo Uno vs. Aquino III, G.R. No. 210500, April 02, 2019