CNMI RETIREMENT FUND BALKS AT FITIAL PROPOSALS

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By Liberty Dones

SAIPAN, CNMI (Saipan Tribune, May 9) –Commonwealth of the Northern Mariana Islands Gov. Benigno Fitial’s proposals relating to the government Retirement Fund would lead to serious legal problems and the possible bankruptcy of the Fund, said its officials.

Fund officials said that the proposals-to write off the government's $124-million unfunded liability with the Retirement Fund, suspend its payment of employer contribution this fiscal year, tap $40 million revenue bond from the Fund, and stop funding the group health insurance program-would tip the Fund toward insolvency.

"The Fund would lose because there's nothing to invest. There's already a huge loss because we don't have it (the money owed by the government to the Fund). It would be worse if you forgive it," said Fund administrator Karl T. Reyes in an interview.

cited the $85 million arrears in employer contributions, which, if invested, would get a 7.5 percent interest a year. This equates to $6.3 million. In 10 years, this would translate to $63 million in interests that will be lost.

Reyes pointed out that the Fund is mandated to be self-sustaining.

"Without that kind of money, we don't get interest, so we can't be self-sustaining," said Reyes.

He said that, when the Fund was set up in 1980, it was mandated to be self-sustaining after 40 years or in 2020, with a total asset of at least $1 billion.

"That forgiveness would not make it happen," he said.

He said the proposals would jeopardize the retirement system "because we don't gain anything. We don't increase our assets."

Right now, the Fund lists some $500 million in total assets.

For his part, Fund board chair Joseph Reyes said the Fund "is not in the business to write off debts."

"There's a lot of legal questions here. First of all, we are a pension plan. Our primary responsibility are the participants," he said.

On the proposed revenue bond, he said there are limitations on what the Fund can do for investments.

The Fitial administration, in a bill submitted to the Legislature Friday, proposed that since the Fund invests its money both abroad and locally, it should consider investing in CUC by purchasing revenue bonds totaling $40 million.

The bill, titled the "Defined Benefit Plan Rescue and Reform Act of 2006," said the writeoff and other related plans would provide the CNMI government "with a fresh start."

It said the government's accumulated unfunded liability with the Fund now totals $123.7 million since 1995.

It said that based on an actuarial study, the NMI Retirement Fund's defined benefit plan is only 46 percent funded and that "it is saddled with an unfunded liability that is approaching one-half billion dollars [$470 million as of Oct. 1, 2004].

This was created due to the following obligations: prior service credits, early retirement bonus and increased benefits, failure to remit required employer contributions, and the low number of paying members.

Likewise, the bill aims to suspend the government's payments to the Retirement Fund for the remainder of FY 2006 or up to Sept. 30 this year. The administration hopes to save about $11 million from this payment suspension.

The administration, in its budget submission of $193.5 million for fiscal year 2007, also said that the government would no longer pay for the group health insurance program. It said that members would have to shoulder all expenses.

May 9, 2006

Saipan Tribune http://www.saipantribune.com

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