After reading On Investment of the Trust Fund under the Pre-Need Code of the Philippines, read also When should an Employee file all his Money Claims arising from Employer-Employee Relationship?
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To ensure the liquidity of the trust fund, all investments of the trust fund/s of a pre-need company shall be limited
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Investments in duly registered collective instrument instruments such as mutual funds are allowed
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Trust fund/s may be invested in fixed income instruments, equities and real estates
The Pre-need Code of the Philippines or Republic Act No. 9829 provides that to ensure the liquidity of the trust fund to guarantee the delivery of the benefits provided for under the plan contract and likewise obtain sufficient capital growth to meet the growing actuarial reserve liabilities, trust fund/s may be invested in fixed income instruments.
What are the inclusions under fixed income instruments?
The law says:
Fixed income instruments which may be classified into short-term and long-term instruments includes the following:
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Government securities which shall not be less than ten percent (10%) of the trust fund amount;
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Savings/time deposits and unit investment trust funds maintained with and managed by a duly authorized bank with satisfactory examination rating as of the last examination by the Bangko Sentral ng Pilipinas (BSP);
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Commercial papers duly registered with the Securities and Exchange Commission (SEC) with a credit rating of “1” for short – term and “AAA” for long – term based on the rating scale of an accredited Philippine Rating Agency or its equivalent at the time of investment. The maximum exposure to long – term commercial papers shall not exceed fifteen percent (15%) of the total trust fund amount while the exposure to each commercial paper issuer shall not exceed ten percent (10%) of the allocated amount; and
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Direct loans to corporations which are financially stable, profitable for the last three (3) years and have a good track record of paying their previous loans.
These loans shall be fully secured by a real estate mortgage up to the extent of sixty percent (60%) of the zonal valuation of the property at the time the loan was granted. The property shall be covered by a transfer certificate of title registered in the name of the mortgagor and free from liens and encumbrances.
The maximum amount to be allocated for direct loans shall not exceed five percent (5%) of the total trust fund amount while the amount to be granted to each corporate borrower shall not exceed ten percent (10%) of the amount allocated. The maximum term of the loan should be no longer than four (4) years.
For direct loans to planholders, it shall be exempt from the said limitations provided that such loans to planholders shall not exceed ten percent (10%) of the total trust fund amount.
May a trust fund be invested in equities?
The law says:
Yes.
However, investments in equities shall be limited to stocks listed on the main board of a local stock exchange.
Investments in duly registered collective investment instruments such as mutual funds are allowed provided that such funds are invested only in fixed income instruments and blue chips securities, subject to the limitations prescribed by laws, rules and regulations.
These investments shall include stocks issued by companies that are financially stable, actively traded, possess good track record of growth and have declared dividends for the past three (3) years.
May a trust fund be invested in real estates?
The law says:
Yes.
Investment in real estates shall include real estate properties located in strategic areas of cities and first-class municipalities. The transfer certificate of title (TCT) shall be in the name of the seller, free from liens and encumbrances and shall be transferred in the name of the trustee in trust for the planholders unless the seller/transferor is the pre-need company wherein an annotation to the TCT relative to the sale/transfer may be allowed. It shall be recorded at acquisition cost.
However, the real estate shall be appraised every three (3) years by a licensed real estate appraiser, accredited by the Philippine Association of Real Estate Appraisers, to reflect the increase or decrease in the value of the property. In case the appraisal would result in an increase in the value, only sixty percent (60%) of the appraisal increase is allowed to be recorded in the books of the trust fund but in case of decline in value, the entire decline shall be recorded. Appraisal increment should not be used to cover up the required monthly contribution to the trust fund.
Note that the total recorded value of the real estate investment shall not exceed ten percent (10%) of the total trust fund amount of the pre-need company.
Moreover, investment of the trust fund which is not in accordance with the preceding paragraphs shall not be allowed unless prior written approval of the Insurance Commission had been secured.
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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