Minimum Service for Retirement Benefits

WHAT IS THE MINIMUM YEARS OF SERVICE REQUIREMENT FOR RETIREMENT PAY ELIGIBILITY?

Importance of five (5) years

Five (5) years is the minimum years of service that must be rendered by the employee before he can avail of the retirement benefits upon reaching optional or compulsory retirement age under Article 287.

But this period holds true only “in the absence of a retirement plan or agreement providing for retirement benefits of employees in the establishment. ” Hence, the employer and the employee are free to stipulate a different period in the retirement plan, employment contract or CBA.

However, being in the nature of “minimum” requirement, the parties cannot stipulate a period higher than five (5) years since this will run counter to the intention of the law to grant retirement benefits not upon reaching the “maximum” but merely the “minimum” requirement – a rule that obviously favors the workers and therefore deserves to be construed for their benefit.

Components of the minimum 5-year service requirement

The minimum length of service of at least five (5) years required for entitlement to retirement pay under Article 287 includes authorized absences and vacations, regular holidays, and mandatory fulfillment of a military or civic duty. In case, however, the business establishment has closed its operations for sometime, only the period of actual service should be counted and reckoned in computing the retiring employee’s length of service. The period of time when the business establishment was closed should not be included.
The age and service requirements are cumulative; non-compliance with one negates entitlement to the retirement benefits.

Simply stated, in the absence of any retirement plan or applicable agreement, an employee must (1) retire when he is at least sixty (60) years of age and (2) serve at least (5) years in the company to entitle him/her to the retirement benefits provided under the law.

Thus, where an employee like the petitioner in the 2013 case of Padillo v. Rural Bank of Nabunturan, Inc., terminated his employment due to disease when he was at 55 years of age, his claim for retirement benefits was not granted and instead, he was simply awarded financial assistance of P75,000.00, exclusive of the P100,000.00 benefit under the Philam Life retirement/insurance plans earlier taken out for the employees by respondent bank in anticipation of its possible closure and the concomitant severance of its personnel. In the absence of any applicable contract or any evolved company policy, Padillo should have met the age and tenure requirements set forth under Article 287 of the Labor Code to be entitled to the retirement benefits provided therein. Unfortunately, while Padillo was able to comply with the five (5) year tenure requirement – as he served for twenty-nine (29) years – he, however, fell short with respect to the sixty (60) year age requirement given that he was only fifty-five (55) years old when he retired.

The 2014 case of Intel Technology Philippines, Inc. v. NLRC and Jeremias Cabiles, similarly held that if the retirement plan requires a minimum number of years of service as a pre-requisite to entitlement to retirement benefits, the employee seeking such benefits should fully comply therewith.