Aside from lending back as loans to its members their contributions, the Social Security System is also unique for being one of the few social security organizations that invest its trust funds in the stock market.
The American Social Security Administration, for instance, invests its trust funds only in securities issued by the United States Treasury, and never in stocks. But these securities, unlike regular issues, are special because aside from their principal and interest being guaranteed, they are also redeemable at face value at any time before maturity.
In fact, SSS started to invest in marketable stocks 30 years ago only after the signing by President Corazon Aquino into law of Executive Order 102 on Dec. 24, 1986. It was clear then that this authority was to be exercised through SSS administrator Joey Cuisia, who would later become Bangko Sentral ng Pilipinas governor, Philamlife Insurance Company president, and Philippine Ambassador to the United States.
The Canada Pension Plan had also all of its trust funds invested in government bonds prior to Dec. 18, 1997. But thereafter, it has gradually invested globally inequities, bonds, debts, real estate, infrastructure and other instruments of both public and private entities.
Interestingly, an independent body—the CPP Investment Board—does the investing of CPP’s trust funds. Proudly, it proclaims that its “mandate is to invest in the best interests of Canada Pension Plan contributors and beneficiaries and to maximize investment returns without undue risk of loss.”
It also acknowledges that “Canadians have the right to know why, how and where we invest their Canada Pension Plan money as well as who makes the investment decisions, what assets are owned on their behalf and how the investments are performing.”
It has thus disclosed ownership of 40 percent of the Ontario Highway 407 Express Toll Route and 21.5 percent of the South Korean discount store chain Homeplus.
By Sept. 30, 2016, these investments have reached C$300.5 billion or about P12,351.0 billion at today’s exchange rate. On the other hand, CPP’s unfunded liability as of yearend 2015 was estimated at C$884 billion.
Our Republic Act 8282 or the Social Security Act of 1997 that President Fidel Ramos approved on May 1, 1997 has similar investment objectives in its Section 26.
Significantly, it also stated that “the Commission shall manage and invest” the SSS Investment Reserve Fund.
Yes, it was the Commission —not the SSS—that the SSA of 1997 mandated tomanage and invest the IRF of the SSS.
In fact, our social security law had been consistent in recognizing since 1954 the more dominant role of the Commission by providing that “SSS shall be directed and controlled by a Social Security Commission.”
Section 4 bestowed each with separate duties and powers as if they were separate and distinct entities, but it was Section 26 that spelled out the investment standards to be followed. It even quantified the Commission’s performance target –
“…the Commission shall manage and invest with the skill, care, prudence and diligence…that a prudent man acting in like capacity and familiar with such matters would exercise in the conduct of an enterprise of a like character and with similar aims…to earn an annual income not less than the average rates of treasury bills or any other acceptable market yield indicator.”
This major amendment may have been inadvertently left untouched. Perhaps, the Commission had conveniently delegated its new investment mandate to SSS.
But to this day, SSS has continued investing the IRF.
In fact, many of us were surprised—and even raised our eyebrows—when the newly-appointed Chairman talked excitedly how the social security funds should be invested. After all, he is a celebrated “abogado de campanilla,” and never a known experienced investment manager.
We were used to appreciating the Commission as the policy-making body of SSS and for simply being a public sector counterpart of private sector boards of directors.
Its other main function is to settle contested decisions made by SSS officials on issues of membership, contributions and benefit adjudications. Assisted by a complete legal staff and as if it were a regular court of justice, it hears these appeals in special hearing rooms complete with stenographers and lawyers arguing two sides of a case.
But never has the Commission been deeply involved in investments except to approve or disapprove proposals that were presented before it by SSS officers. Never has it thus employed a full-time investment staff other than a few consultants who were not accountable for any investment decision.
Clearly, the Chairman has read thoroughly the SSA of 1997. Consequently, he could now be contemplating whether or not his incoming Commission would assume its investment mandate. And by outrightly absorbing the entire investment staff of SSS, the Commission could jump-start its investments in areas where its Chairman has already showed preference—basic utilities such as electricity and water.
The Commission could then usher a new investment era where it would be responsible for generating much-needed investment revenues.
Of course, if the Commission would be intimidated in performing such an awesome task, it could instead create an entirely new independent investment board similar to that of the Canadian Pension Plan Investment Board.
Both options would enable SSS to focus in collecting contributions and administering pensions, including their periodic adjustments and either one is better than amending Section 26 to revert back to SSS the investment mandate.