Manila Electric Company

March 4, 2003 SEC OPINION NO. 05-03 Manila Electric Company Ortigas Avenue, Pasig City Metro Manila Attention: Mr. Dennis E. Alabanza Head, Corporate Staff Local Services Office Gentlemen : This is in response to your queries relative to the operation of the Meralco Electric Company's (Meralco) Pension Fund (hereinafter, MPF). Specifically, you raised the following questions: 1. Are trust funds and pension funds within the jurisdiction of the SEC? 2. Can the MPF transact business on its own, enter into contract etc., acquire real property in its name? We understand that the fund was set up in compliance with existing labor laws mandating the provision or payment of retirement pay to private sector employees. In your letter, you stated that the MPF is a trusteed fund established by Meralco for the purpose of financing the retirement or pension plans of its employees. As described, the company's retirement and pension plan is not-contributory and employment-based. Under the plan, Meralco assumes all premium payments. Employment in Meralco is a qualification requirement for participation or entitlement to the benefits. In other words, the plan is not offered to the general public. You also stated that the MPF is a trusteed pension fund administered by a Board of Trustees. The MPF is not registered with the SEC, but the retirement plans associated with the Fund are registered with the BIR. The Commission does not regulate or supervise the establishment, management or operation of privately-managed, employment-based pension or retirement plans set up by an enterprise and/or its employees for employee retirement benefits. Neither does it regulate the trust fund set up for this purpose. Thus, Meralco's retirement/pension plan, as described, is not covered by any regulation of this Commission. The trust fund set up for this purpose is, likewise, not subject to SEC regulation. While the Commission, thought the Non-Traditional Securities and Instruments Department, indeed regulates pension plans, this regulatory power is limited to voluntary pension or retirement plans provided by third party entities. These are commonly referred to as pre-need plans and are issued and offered by pre-need plan companies to the general public. Purchase of these plans is voluntary on the part of the buyer and his/her participation is not predicated on employment. The pre-need plan, as well as the trust fund established to fund the benefits under the plan, are subject to the Rules and Regulations on the Registration and Sale of Pre-Need Plan Products of the Commission. The trust banks or institutions allowed by the Pre-Need Rules to manage the pre-need trust funds are licensed and regulated by the Bangko Sentral ng Pilipinas. TAaIDH As to your second query, there is no SEC rule requiring entities managing private pension or retirement funds to be registered as a corporation. It is, thus, left to your sound discretion whether you wish to create a juridical entity for this purpose and avail of the advantages of a corporate structure. Establishing a corporation for your purpose will allow the entity possessing and managing the fund to acquire a juridical personality separate and distinct from that of the persons owning or managing the fund. Upon incorporation, the new corporation can act as a legal unit, hold property, contract under its own name, and sue and be sued as a distinct unit. We hope we have satisfactorily answered your query. Very truly yours, (SGD.) VERNETTE UMALI-PACO General Counsel