In a significant ruling concerning employee benefits, the Supreme Court of the Philippines addressed the legality of early retirement incentive programs (ERIPs) offered by government-owned and controlled corporations (GOCCs). The Court ruled that the Development Bank of the Philippines’ (DBP) Early Retirement Incentive Program IV (ERIP IV) is a valid early retirement plan, not a prohibited supplementary retirement scheme. This decision affirms the rights of DBP employees who availed of the ERIP IV to receive their retirement benefits, clarifying the scope and limitations of retirement benefits under Philippine law and setting a precedent for similar programs in other GOCCs. This case emphasizes the importance of properly structured retirement plans that comply with legal requirements.

DBP’s Retirement Promise: Is It a Prohibited Bonus or a Valid Incentive?

The consolidated cases of Elaine R. Abanto, et al. v. The Board of Directors of the Development Bank of the Philippines and Development Bank of the Philippines v. Commission on Audit revolved around the validity of DBP’s ERIP IV. The Commission on Audit (COA) disallowed the ERIP IV, arguing that it was an illegal supplementary retirement plan under the Teves Retirement Law (Republic Act No. 4968), which prohibits the creation of supplementary retirement plans. This prompted a group of DBP retirees to file a petition for mandamus seeking the release of their retirement benefits, while DBP challenged the COA’s disallowance order through a petition for certiorari.

The central legal question was whether DBP’s ERIP IV constituted a legitimate early retirement incentive program or a prohibited supplementary retirement plan. To answer this, the Court delved into the objectives and structure of the ERIP IV, as outlined in DBP Circular No. 15. This circular detailed the program’s goals, which included ensuring the bank’s vitality, infusing new talent, achieving cost savings, and creating career advancement opportunities. Furthermore, the circular specified the eligibility criteria, covering employees aged 50 or above with at least 15 years of service, as well as those displaced due to realignment or streamlining, regardless of age or service.

The COA’s primary argument rested on the assertion that ERIP IV increased the benefits of retiring employees beyond what is allowed under the GSIS retirement laws, effectively creating a supplementary retirement benefit. The COA cited items C.3 and H.2 of DBP Circular No. 15, which provided additional incentives for those retiring under RA 660 (Magic 87) and affirmed the retirees’ entitlement to regular GSIS retirement benefits. This, according to COA, amounted to double compensation, which is constitutionally prohibited. DBP countered that ERIP IV should be viewed as a form of separation pay arising from a reorganization, entitling the availees to benefits under both ERIP IV and existing retirement laws.

The Supreme Court analyzed the objectives of the ERIP IV and compared them with the characteristics of a valid early retirement incentive plan. Citing the case of GSIS v. COA (674 Phil. 578 (2011)), the Court emphasized that the primary consideration is the objective of the plan. An early retirement incentive plan is designed to encourage employees to retire early due to reorganization, streamlining, or other circumstances requiring the termination of some employees. In contrast, a supplementary retirement plan aims to reward employees for loyalty and lengthy service, augmenting their retirement benefits. The Court noted the general objective of DBP’s ERIP IV was to “ensure the vitality of the Bank for the next ten (10) years and make it attuned to the continuing advances in banking technology,” and specifically aimed to infuse new talent, achieve cost savings, and create career advancement opportunities. Therefore, the ERIP IV aligned with the objectives of an early retirement incentive plan.

Furthermore, the Court distinguished DBP’s ERIP IV from the retirement plan in GSIS v. COA, which was deemed a supplementary retirement plan because it was available only to those already qualified to retire or those who had previously retired. In contrast, DBP’s ERIP IV was open to employees aged 50 or above with at least 15 years of service, as well as those displaced due to realignment, regardless of age or years of service. This broader eligibility criterion, coupled with the objective of reorganization and streamlining, solidified the ERIP IV’s classification as an early retirement incentive plan. The Court further elaborated on the distinction between retirement benefits and separation pay, referencing several cases, including Laraño v. COA (565 Phil. 271 (2007)) and Betoy v. The Board of Directors, National Power Corporation (674 Phil. 204 (2011)).

Specifically, the Court quoted Section 34 of the DBP Charter, stating:

SEC. 34. Separation Benefits. — All those who shall retire from the service or are separated therefrom on account of the reorganization of the Bank under the provisions of this Charter shall be entitled to all gratuities and benefits provided for under existing laws and/or supplementary retirement plans adopted by and effective in the Bank: Provided, that any separation benefits and incentives which may be granted by the Bank subsequent to June 1, 1986, which may be in addition to those provided under existing laws and previous retirement programs of the Bank prior to the said date, for those personnel referred to in this section shall be funded by the National Government; Provided, further, that, any supplementary retirement plan adopted by the Bank after the effectivity of this Chapter shall require the prior approval of the Minister of Finance.

The court noted that retirement benefits are a reward for an employee’s loyalty and service, while separation pay is designed to provide support during the period of unemployment after severance. Since ERIP IV was analogous to separation pay, the Court reasoned that granting benefits under it alongside benefits under other retirement laws should not be considered double compensation. Therefore, the ERIP IV did not violate the prohibition on supplementary retirement plans.

Moreover, the Supreme Court referenced its prior ruling in DBP v. COA (467 Phil. 62 (2004)), which upheld the authority of the DBP Board to adopt supplementary retirement plans. Despite the Teves Retirement Law’s prohibition, the DBP Charter, as a special and later law, prevails, expressly authorizing supplementary retirement plans. However, the Charter also stipulates that any supplementary retirement plan adopted after the effectivity of the Charter requires the prior approval of the Secretary of Finance.

In this instance, ERIP IV was determined not to be a supplementary retirement plan. As such, the Court concluded that prior approval from the Secretary of Finance was unnecessary to ensure the validity of the program.

FAQs

What was the key issue in this case?	The key issue was whether the Early Retirement Incentive Program (ERIP) IV of the Development Bank of the Philippines (DBP) was a valid early retirement incentive plan or an illegal supplementary retirement plan. The Commission on Audit (COA) had disallowed the ERIP IV, arguing it was an illegal supplementary plan.
What is the Teves Retirement Law?	The Teves Retirement Law (Republic Act No. 4968) prohibits the creation of supplementary retirement plans in addition to the benefits provided under the Government Service Insurance System (GSIS) retirement laws. It was the basis for COA’s disallowance of the DBP’s ERIP IV.
What did the Supreme Court decide?	The Supreme Court decided that DBP’s ERIP IV was a valid early retirement incentive plan, not a prohibited supplementary retirement plan. The Court reversed and set aside COA’s decision disallowing the payment of retirement benefits under ERIP IV.
What is the difference between an early retirement incentive plan and a supplementary retirement plan?	An early retirement incentive plan encourages employees to retire early due to reorganization or streamlining. A supplementary retirement plan, on the other hand, rewards employees for loyalty and lengthy service, augmenting their existing retirement benefits.
Why did the Court consider the DBP’s ERIP IV to be a valid early retirement plan?	The Court considered DBP’s ERIP IV a valid early retirement plan because its primary objective was to ensure the vitality of the bank by infusing new talent, achieving cost savings, and creating career advancement opportunities, aligning with the nature of an early retirement incentive program. Additionally, the plan was available to employees not yet qualified to retire.
Did the fact that the ERIP provided benefits in addition to GSIS retirement benefits matter?	The Court held that ERIP IV, in the form of a separation pay, is given to employees who are affected by the reorganization and streamlining of DBP. Separation pay and retirement benefits are not mutually exclusive. Because the program was valid, it did not constitute double compensation.
Why didn’t prior approval from the Secretary of Finance matter in this case?	Prior approval from the Secretary of Finance is required for supplementary retirement plans under the DBP Charter. Because the Court determined that ERIP IV was an early retirement incentive plan, it was not subject to the approval requirement.
How does this decision affect other GOCCs?	This decision provides clarity on the legal framework for early retirement incentive programs in GOCCs. It emphasizes the importance of structuring such programs to align with the objectives of early retirement and to avoid being classified as prohibited supplementary retirement plans.

This ruling from the Supreme Court offers important clarification on the validity and scope of early retirement incentive programs within government-owned corporations. By distinguishing between valid early retirement incentives and prohibited supplemental retirement plans, the Court has provided a framework for GOCCs to design and implement employee benefit programs that are both legally compliant and beneficial for employees. Moving forward, GOCCs must carefully structure their retirement plans to align with the objectives of early retirement, ensuring they do not merely augment existing retirement benefits, but rather incentivize early departure for organizational vitality.

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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: Abanto, et al. vs. Board of Directors of DBP, G.R. No. 207281, March 05, 2019