GSIS vs. Commission on Audit

A retirement plan adopted by a government-owned and controlled corporation under a statutory grant of authority to design an "early retirement incentive plan or financial assistance" is void if it functions as a supplementary retirement plan that augments benefits already available under existing retirement laws, in violation of Section 28(b) of Commonwealth Act No. 186 as amended by Republic Act No. 4968 (the Teves Retirement Law). The Teves Retirement Law remains good law notwithstanding the enactment of Republic Act No. 8291, the general repealing clause of which does not expressly or impliedly repeal the prohibition against supplementary retirement plans.

The Government Service Insurance System (GSIS) is a government-owned and controlled corporation created under Commonwealth Act No. 186, later governed by Presidential Decree No. 1146, and presently chartered under Republic Act No. 8291 (the GSIS Act of 1997). Section 41(n) of RA 8291 grants the GSIS Board of Trustees the power "to design and adopt an Early Retirement Incentive Plan (ERIP) and/or financial assistance for the purpose of retirement for its own personnel." Separately, Commonwealth Act No. 186, as amended by Republic Act No. 4968 (the Teves Retirement Law), prohibits the creation of any insurance or retirement plan for officers or employees by any employer and declares all supplementary retirement or pension plans inoperative or abolished. The COA, as the constitutional fiscal watchdog, possesses audit authority over government expenditures, including the power to disallow irregular expenditures of public funds.

On May 30, 1997, Republic Act No. 8291, the GSIS Act of 1997, was enacted, expanding the coverage and benefits of the GSIS and granting its Board of Trustees, under Section 41(n), the power "to design and adopt an Early Retirement Incentive Plan (ERIP) and/or financial assistance for the purpose of retirement for its own personnel." Pursuant to this authority, the GSIS Board of Trustees, upon the recommendation of the Management-Employee Relations Committee, approved Board Resolution No. 326 on October 17, 2000, adopting the GSIS Employees Loyalty Incentive Plan (ELIP). The ELIP's stated objective was "[t]o motivate and reward employees for meritorious, faithful and satisfactory service." To be entitled to the plan, an employee must be qualified to retire with a five-year lump sum under RA 660 or RA 8291, or must have previously retired under applicable retirement laws. The plan computed a loyalty incentive by multiplying total government service by the highest monthly salary received, less the five-year lump sum or retirement benefit previously received. On November 21, 2000, Board Resolution No. 360 amended the ELIP to provide a single rate for all positions regardless of salary grade. On January 16, 2001, Board Resolution No. 6 renamed the ELIP to the GSIS Retirement/Financial Plan (RFP) to conform to the wording of Section 41(n) of RA 8291.

GSIS Corporate Auditor Dimagiba questioned the legality of the plan, communicating to the GSIS President and General Manager that the GSIS RFP was contrary to law. The GSIS Legal Services Group countered that the GSIS Board was legally authorized to adopt the plan, opining that Section 28(b) of Commonwealth Act No. 186 as amended by RA 4968 had been repealed by Sections 3 and 41(n) of RA 8291. Upon Winston Garcia's assumption of office as President and General Manager, Dimagiba requested a review of the GSIS RFP, but Garcia denied the request. Dimagiba then sought the assistance of COA, whose General Counsel Alquizalas issued a Memorandum on August 7, 2001 opining that the GSIS RFP was a supplementary retirement plan prohibited under RA 4968 (the Teves Retirement Law), and that since RA 8291 contained no express repeal of the Teves Retirement Law, the two laws must be harmonized. Dimagiba forwarded this opinion to Garcia and issued Notices of Disallowance against the retirement benefits paid under the GSIS RFP, on the ground that Board Resolution Nos. 360 and 6 were null and void for contravening Section 28(b) of CA 186 as amended by RA 4968 and Section 41(n) of RA 8291.

Garcia responded by taking exception to the disallowance, arguing it was premature and based on a mere opinion of COA's counsel who had no authority to declare board resolutions null and void. GSIS and the officials held liable appealed the 21 Notices of Disallowance to the COA Corporate Audit Office I, arguing that the GSIS had the power under its charter to adopt the RFP, that other government agencies had similar plans, and that RA 8291 had repealed the inconsistent provisions of the Teves Retirement Law. On May 27, 2002, COA Director Escarda issued CAO I Decision No. 2002-009 affirming the disallowances, holding that the GSIS RFP was in reality a supplementary retirement plan. The petitioners elevated the matter to the COA en banc, which issued Decision No. 2003-062 on March 18, 2003, affirming Escarda's ruling and declaring the RFP void. COA denied reconsideration in Decision No. 2004-004 dated January 27, 2004. The petitioners then filed the present petition for review on certiorari before the Supreme Court.

• Authority to Adopt the RFP: Petitioners maintained that under Section 41(n) of RA 8291, the GSIS Board of Trustees had the power and authority to design and adopt the questioned GSIS Retirement/Financial Plan, and that COA had no power to nullify duly adopted board resolutions of a government corporation.
• Repeal of the Teves Retirement Law: Petitioners argued that Section 3 of RA 8291, which provides that all laws specifically inconsistent therewith are repealed or modified accordingly, had repealed or modified all provisions of the Teves Retirement Law inconsistent with RA 8291.
• Equal Protection: Petitioners claimed that disallowing their retirement plan violated their constitutional right to equal protection, as other government agencies had adopted their own retirement or financial assistance plans.
• Non-Liability of Officers: Petitioners argued that GSIS officials were merely implementing RA 8291 and duly adopted Board Resolutions in the performance of their duties, and thus could not be held responsible and accountable for the implementation of the GSIS RFP.
• Invalidity of the Disallowance: Petitioners contended that the COA disallowance was unlawful, premature, and tantamount to a pre-audit activity, and that the notices of disallowance were based merely on the opinion of COA's counsel who lacked authority to declare board resolutions null and void.
• Irrelevant Matters: Petitioners asserted that COA touched on new and irrelevant matters not raised in the disallowances or pleadings below, and which were never validated.

• Supplementary Retirement Plan: Respondent COA countered that the GSIS RFP was in reality a supplementary retirement plan prohibited by Section 28(b) of CA 186 as amended by RA 4968 (the Teves Retirement Law), as it augmented retirement benefits already available under existing retirement laws.
• Teves Retirement Law Still Good Law: Respondent argued that the Teves Retirement Law had not been repealed by RA 8291, the latter containing only a general repealing clause insufficient to repeal a specific law.
• Mischaracterization of the Plan: Respondent maintained that the GSIS RFP did not qualify as an "early retirement incentive plan" or "financial assistance" under Section 41(n) of RA 8291, because its beneficiaries were employees already eligible to retire or who had already retired, not employees being induced to retire before their retirement age.
• Liability of Accountable Officers: Respondent asserted that the GSIS officials held accountable under the Notices of Disallowance failed to exercise the diligence of a good father of a family in the performance of their functions.
• Actuarial Deficit: Respondent pointed out that GSIS was actuarially deficient by fifteen billion pesos, and that rewarding its employees with excessive benefits would prejudice the GSIS members for whom the fund was principally intended.

• Validity of the GSIS RFP: Whether the GSIS Board of Trustees had the power and authority under Section 41(n) of RA 8291 to design and adopt the GSIS Retirement/Financial Plan.
• Repeal of the Teves Retirement Law: Whether Republic Act No. 8291 repealed or modified Section 28(b) of Commonwealth Act No. 186 as amended by Republic Act No. 4968 (the Teves Retirement Law).
• Nature of the GSIS RFP: Whether the GSIS RFP constituted a supplementary retirement plan prohibited by the Teves Retirement Law.
• Liability of GSIS Officials: Whether the GSIS Board of Trustees and accountable officers could be held liable for the implementation of the GSIS RFP.
• Validity of COA Disallowance: Whether the COA disallowance of the GSIS RFP was lawful and proper.

• Validity of the GSIS RFP: No. The GSIS Board's power under Section 41(n) of RA 8291 was limited to designing an early retirement incentive plan or financial assistance to induce employees to retire before their retirement age; the GSIS RFP, which benefited employees already eligible to retire or previously retired, exceeded this authority.
• Repeal of the Teves Retirement Law: No. The repealing clause in RA 8291 was a general repealing clause insufficient to expressly or impliedly repeal the Teves Retirement Law, as no irreconcilable inconsistency existed between the two statutes.
• Nature of the GSIS RFP: Yes. The GSIS RFP was a supplementary retirement plan prohibited by Section 28(b) of CA 186 as amended by RA 4968, as its purpose was to augment retirement benefits already available under existing retirement laws.
• Liability of GSIS Officials: No. The Board of Trustees and accountable officers were not held liable, being entitled to the presumption of regularity and good faith in the performance of their functions; only the payees were liable for return of the disallowed amounts.
• Validity of COA Disallowance: Yes. The COA acted with caution, diligence, and vigilance in disallowing the excess retirement benefits, and no grave abuse of discretion amounting to lack or excess of jurisdiction could be imputed to it.

• Validity of the GSIS RFP: Section 41(n) of RA 8291 granted GSIS the power to "design and adopt an Early Retirement Incentive Plan (ERIP) and/or financial assistance for the purpose of retirement for its own personnel." This power was qualified by the words "early," "incentive," and "for the purpose of retirement." "Early" means occurring before the expected or usual time, and "incentive" means something that serves to encourage or move to action. The provision contemplated a situation where GSIS, due to reorganization or streamlining, needed to induce employees not yet qualified for optional or compulsory retirement to voluntarily retire early. The phrase "financial assistance," under the doctrine of noscitur a socii, must be construed in association with the preceding words as an incentive scheme to induce early retirement. The GSIS RFP's objective — to motivate and reward employees for meritorious, faithful, and satisfactory service — contradicted the nature of an early retirement incentive plan. Moreover, the RFP required that applicants be qualified to retire under RA 660 or RA 8291 or must have previously retired, meaning its beneficiaries were already eligible to retire or had already retired. This fell outside the scope of an "early retirement incentive plan or financial assistance for the purpose of retirement."

• Repeal of the Teves Retirement Law: The repealing clause in RA 8291 — providing that "all laws or any law or parts of law specifically inconsistent herewith are hereby repealed or modified accordingly" — was not an express repealing clause because it failed to identify or designate the statutes intended to be repealed. It was a clause predicated upon the condition that a substantial conflict must be found between existing and prior laws. The failure to add a specific repealing clause indicated that the legislature did not intend to repeal any existing law absent an irreconcilable inconsistency. Repeal by implication was not favored, as laws are presumed to be passed with deliberation and full knowledge of existing laws. No incompatibility existed between the two statutes: RA 8291 spoke of an early retirement incentive plan or financial assistance for GSIS employees, while the Teves Retirement Law prohibited separate retirement or insurance plans and abolished supplementary retirement or pension plans. The two provisions could be harmonized — RA 8291 authorized an early retirement incentive plan, while the Teves Retirement Law prohibited supplementary retirement plans; these were not irreconcilable.

• Nature of the GSIS RFP: The GSIS RFP was a supplementary retirement plan because its purpose was to augment retirement benefits that employees would receive under existing retirement laws, not to encourage early retirement. The renaming from "Employees Loyalty Incentive Plan" to "Retirement/Financial Plan" did not change its essential nature. The plan allowed even Board members not qualified to retire under any existing retirement law to retire under the RFP, effectively creating a third retirement plan for GSIS personnel only. This was squarely governed by Conte vs. Commission on Audit, where the Court sustained COA's disallowance of a similar SSS financial assistance scheme as a supplementary retirement plan proscribed by Section 28(b) of CA 186 as amended by RA 4968. The fact that RA 8291 was enacted after Conte was of no moment, as what was interpreted in Conte was the very provision of the Teves Retirement Law at issue. Additionally, the RFP's inclusion of years of government service of previously retired employees in computing benefits would countenance double compensation for exactly the same services, in violation of Section 8, Article IX-B of the Constitution, which proscribes additional, double, or indirect compensation.

• Liability of GSIS Officials: Although Dimagiba had questioned the legality of the GSIS RFP as early as December 2000, it was only in August 2001 when GSIS received COA's opinion, and COA first decided the issue only in 2002. While the Board of Trustees believed they had the authority to adopt the RFP, the officers believed they were implementing a valid resolution. Under Buscaino vs. Commission on Audit, the resolution of the Board of Trustees was sufficient basis for disbursement, and it was beyond the officers' competence to pass upon the validity of board resolutions. The Board and officers were entitled to the presumption of having exercised their functions with regularity and in good faith. However, the payees who received the disallowed benefits were liable for their return.

• Validity of COA Disallowance: COA did not nullify the Board Resolutions; it affirmed the disallowances made by GSIS's own Corporate Auditor. COA's reference to its general counsel's opinion and to matters not raised below was done only to reinforce its position and had no bearing on the weight of its decisions, which were based on existing laws and jurisprudence. Under Section 11 of Presidential Decree No. 1445 (the Government Auditing Code), COA's legal office was charged with interpreting pertinent laws and auditing rules and regulations. COA acted with caution, diligence, and vigilance, especially given that huge amounts of public money were involved, GSIS's funds coming from the contributions of its members.

• General vs. Specific Repealing Clauses — A general repealing clause, which predicates intended repeal upon the existence of a substantial conflict between the new and prior laws without identifying or designating the statutes to be repealed, is insufficient to expressly repeal a prior law. Absent an express repealing clause, repeal by implication is not favored and requires that the two laws be absolutely incompatible and clearly repugnant. In this case, RA 8291's general repealing clause did not repeal the Teves Retirement Law because no irreconcilable inconsistency existed between the two statutes.

• Statutory Construction — Noscitur a Socii — Under the doctrine of noscitur a socii, the construction of a particular word or phrase that is ambiguous or susceptible of various meanings may be made clear by considering the company of words with which it is associated. The Court applied this doctrine to construe "financial assistance" in Section 41(n) of RA 8291 as an incentive scheme to induce early retirement, reading it in association with the preceding words "early retirement incentive plan."

• Prohibition Against Supplementary Retirement Plans — Section 28(b) of CA 186 as amended by RA 4968 (the Teves Retirement Law) bars the creation of any insurance or retirement plan for government officers or employees other than the GSIS, and declares all supplementary retirement or pension plans inoperative or abolished. A plan that augments retirement benefits already available under existing laws, rather than inducing employees to retire before their retirement age, is a supplementary retirement plan prohibited by this provision.

• Presumption of Regularity and Good Faith — Public officers who approve or implement disbursements pursuant to a duly adopted board resolution are entitled to the presumption of regularity and good faith in the performance of their functions. It is beyond the competence of subordinate officers to pass upon the validity of board resolutions, and the board resolution itself is sufficient basis for disbursement. Accordingly, such officers are not personally liable for disallowed amounts, though the payees remain liable for return.

• Prohibition Against Double Compensation — Section 8, Article IX-B of the Constitution prohibits additional, double, or indirect compensation unless specifically authorized by law. Crediting years of government service of previously retired employees — for which they had already received retirement benefits — into the computation of new retirement benefits constitutes double compensation for exactly the same services.

• "The repealing clause contained in Republic Act No. 8291 is not an express repealing clause because it fails to identify or designate the statutes that are intended to be repealed. It is actually a clause, which predicated the intended repeal upon the condition that a substantial conflict must be found in existing and prior laws." — This passage articulates the Court's reasoning for why the Teves Retirement Law was not repealed by RA 8291, establishing the distinction between general and specific repealing clauses.

• "Section 41(n) of Republic Act No. 8291 contemplates a situation wherein GSIS, due to a reorganization, a streamlining of its organization, or some other circumstance, which calls for the termination of some of its employees, must design a plan to encourage, induce, or motivate these employees, who are not yet qualified for either optional or compulsory retirement under our laws, to instead voluntarily retire." — This passage defines the scope and limits of the GSIS Board's authority under Section 41(n), clarifying that the power is confined to early retirement incentive plans.

• "Without a doubt, the GSIS RFP is a supplementary retirement plan, which is prohibited by the Teves Retirement Law." — This is the decisive conclusion on the nature of the GSIS RFP, forming the ratio decidendi for declaring Board Resolution Nos. 326, 360, and 6 illegal and void.

• "it is beyond cavil that [the GSIS Retirement/Financial Plan] contravenes [Section 28(b) of C.A. No. 186 as amended by R.A. No. 4968 or the Teves Retirement Law], and is therefore invalid, void, and of no effect. To ignore this and rule otherwise would be tantamount to permitting every other government office or agency to put up its own supplementary retirement benefit plan under the guise of such 'financial assistance.'" — Borrowed from Conte vs. Commission on Audit, this passage articulates the policy rationale behind the prohibition: preventing the undue and inequitable proliferation of supplementary retirement plans in government.

• Conte vs. Commission on Audit, 332 Phil. 20 (1996) — Controlling precedent. The Court applied the doctrine from this case, which held that an SSS financial assistance scheme constituted a supplementary retirement plan proscribed by Section 28(b) of CA 186 as amended by RA 4968. The Court found Conte squarely applicable notwithstanding the subsequent enactment of RA 8291, as the provision interpreted in Conte — the Teves Retirement Law — remained good law.

• Santos vs. Court of Appeals, 282 Phil. 298 (2000) — Applied. The Court relied on this case for the principle that crediting years of service in a previous government office toward separation pay computations would run counter to the policy against double compensation and violate Section 8, Article IX-B of the Constitution. The same rationale was applied to the GSIS RFP's inclusion of previously retired employees' government service.

• Buscaino vs. Commission on Audit, 369 Phil. 886 (1999) — Applied. The Court cited this case for the proposition that a board resolution is sufficient basis for disbursement, and it is beyond the competence of subordinate officers to pass upon the validity of such board resolutions, supporting the absolution of GSIS officers from liability.

• Recaña, Jr. vs. Court of Appeals, 402 Phil. 26 (2001) — Cited for the rule that repeals by implication are not favored, as laws are presumed to be passed with deliberation and full knowledge of all existing laws on the subject.

• Philippine International Trading Corporation vs. Commission on Audit, G.R. No. 183517, June 22, 2010, 621 SCRA 461 — Cited for the principle that the best method of interpretation is that which makes laws consistent with other laws, and that all acts in pari materia are to be taken together as if they were one law.

• Section 41(n), Republic Act No. 8291 (GSIS Act of 1997) — Grants the GSIS Board of Trustees the power "to design and adopt an Early Retirement Incentive Plan (ERIP) and/or financial assistance for the purpose of retirement for its own personnel." The Court construed this provision as limited to plans that induce employees to retire before their retirement age, not to plans that supplement benefits for those already eligible to retire.

• Section 28(b), Commonwealth Act No. 186 as amended by Republic Act No. 4968 (Teves Retirement Law) — Provides that "no insurance or retirement plan for officers or employees shall be created by any employer" and declares "all supplementary retirement or pension plans heretofore in force in any government office, agency, or instrumentality or corporation owned or controlled by the government" inoperative or abolished. The Court held this provision was not repealed by RA 8291 and that the GSIS RFP violated it.

• Section 3, Republic Act No. 8291 — Contains the general repealing clause providing that "all laws or any law or parts of law specifically inconsistent herewith are hereby repealed or modified accordingly." The Court held this was not an express repealing clause and was insufficient to repeal the Teves Retirement Law absent an irreconcilable inconsistency.

• Section 8, Article IX-B, 1987 Constitution — Prohibits additional, double, or indirect compensation unless specifically authorized by law. The Court applied this provision to invalidate the GSIS RFP's inclusion of previously retired employees' years of government service in computing benefits, which would amount to double compensation for the same services.

• Section 11, Presidential Decree No. 1445 (Government Auditing Code of the Philippines) — Charges COA's Legal Office with performing advisory and consultative functions and rendering legal services with respect to the interpretation of pertinent laws and auditing rules and regulations. The Court cited this provision to uphold the propriety of COA's reliance on its general counsel's legal opinion.

Chief Justice Renato C. Corona, Associate Justice Antonio T. Carpio, Associate Justice Presbitero J. Velasco, Jr., Associate Justice Arturo D. Brion, Associate Justice Diosdado M. Peralta, Associate Justice Roberto A. Abad, Associate Justice Martin S. Villarama, Jr., Associate Justice Jose Portugal Perez, Associate Justice Jose Catral Mendoza, Associate Justice Maria Lourdes P. A. Sereno, Associate Justice Bienvenido L. Reyes, and Associate Justice Estela M. Perlas-Bernabe. Associate Justice Lucas P. Bersamin and Associate Justice Mariano C. Del Castillo were on leave.