SEC steps up reforms, to look into retirement funds

The Securities and Exchange Commission is keen on scrutinizing how retirement funds of large companies are being used for related party transactions as part of corporate governance reforms.

The SEC is also looking at strictly requiring the itemized breakdown of compensation, bonuses and other benefits given by corporations to directors and top officers.

These were among the reforms discussed by SEC chairperson Teresita Herbosa on Thursday with members of the Shareholders’ Association of the Philippines (SharePHIL), a new organization that aims to promote domestic capital market development through advocacy, education and enlightenment of shareholders.

The issue of regulating the investments of retirement funds was raised by former Social Security System president Corazon Dela Paz-Bernardo, who noted during SharePHIL’s first general meeting that this was a major concern for employees, especially in the aftermath of the collapse of American firm Enron.

Because the retirement funds were used by Enron to invest in company shares, employees ended up with nothing when Enron went bankrupt, she said.

Herbosa said there were two kinds of retirement funds. One is an incorporated fund that has its own bylaws and board that manages the fund. The other is an unincorporated fund that is usually just registered with the Bureau of Internal Revenue or in the form of trust managed by a bank or the corporation’s own board.

For incorporated retirement funds, Herbosa said the SEC required the usual reports like annual financial statement (AFS) and general information sheet (GIS). To date, however, she said there were 27 incorporated retirement funds and only seven comply with their financial statement reporting obligations.

“We sent notices to all of them, telling them we’ll revoke (license) if they don’t come up with submissions,” Herbosa said.

“Sadly it appears that all the big corporations have unincorporated retirement funds so they are not under us directly. But the big corporations are being regulated by us, so now we required that they have to include in their AFS the sources and uses of those funds. So in a way, we’ll have an idea on what they are using those funds for,” she said.

Herbosa said this was all the SEC could do for now unless Congress would pass a law requiring the incorporation of all retirement funds and put them under the jurisdiction of either the SEC or the Bangko Sentral ng Pilipinas.

“We’ve also seen some pattern of large companies using these funds in related transactions,” she said.

She said retirement funds would be a “different ball game” that Congress would have to thoroughly study.