Bank of Commerce

July 3, 2009 BIR RULING [DA-(C-111) 341-09] DA252-98; DA113-05 Bank of Commerce Phil. First, 6764 Ayala Avenue Makati City Attention: Ms. Lydia E. Virtusio Assistant Vice President and Ms. Gertrude D. Agbay Senior Manager Gentlemen : This refers to your letter dated April 15, 2009 stating that your client, The CAP Life Insurance Corporation Retirement Plan, is a non-contributory retirement plan which provides a retirement benefit ranging from fifty percent (50%) to one hundred percent (100%) of the Plan Salary for every year of credited service; that based on the actuarial valuation report of E.M. Actuarial Services, Inc. that as of December 31, 2007, the estimated past service liability is P11,057,302.00, total net asset of the Retirement Trust Fund, as of that date is P19,640,002.00; that the Fund is therefore overfunded by P8,582,700.00; that on the other hand, the estimated annual normal cost or current contribution is P872,105.00 for the valuation period January 1, 2008 to December 31, 2008 which is 10.4% of covered payroll; that since the Fund is overfunded by an amount which is more than sufficient to pay for the annual normal cost, it is recommended that contribution to the Fund be discontinued for this valuation period; that in case there is an accrued actuarial liability being amortized, the new valuation results indicate that there is no need to continue payment of the amortization; that as of December 31, 2007, the estimated vested benefit is P4,358,784.00 (benefit payable assuming all eligible employees will avail of their benefit) compared to Fund net assets of P19,640,002.00 as of the same date; that the Fund therefore is more than sufficient to pay the benefits if all eligible employees will avail of their benefit during the valuation period; and that it should be noted that the vested amount is based on the applicable benefit under the Plan as of valuation date. Based on the foregoing actuarial study, you would like to request on behalf of the CAP Life Insurance Corporation Retirement Plan that the portion of the Retirement Fund in excess of the amount actuarially determined to cover the benefits of all employees may be reverted back to the company without terminating the Fund and that such excess amount shall be declared as income of the said Company. In reply thereto, please be informed that this Office had already occasioned to rule on the matter when it said in BIR Ruling No. DA252-98 dated June 19, 1998 and later reiterated in BIR Ruling No. DA113-05 dated April 5, 2005, that ". . . Your opinion that the portion of the fund in excess of the amount actuarially determined to cover the benefits of all the employees amounting to more than P100 million may be reverted to BCII without terminating the fund is hereby confirmed. However, BCII should declare as income the said excess of P100 million and pay the corresponding income tax thereon pursuant to Section 27 (A) of the Tax Code of 1997." Accordingly, inasmuch as the above-cited rulings are in all fours similar to the instant case, this Office hereby confirms your opinion that the portion of the fund in excess of the amount actuarially determined to cover the benefits of all the employees in the approximate amount of P5,000,000.00 may be reverted to the CAP Life Insurance Corporation Retirement Plan without terminating the fund. However, the CAP Life Insurance Corporation Retirement Plan should declare as income the excess amount reverted to it and pay the corresponding income tax thereon as prescribed in Section 27 (A) of the Tax Code of 1997, as amended. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service