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By Gemma Q. Casas

SAIPAN, CNMI (Mariana Variety, Dec. 21) - A legislative report says the Commonwealth of the Northern Mariana Islands government is bankrupt and the only reason it cannot declare bankruptcy is that it cannot do so under existing laws.

The Senate Committee on Judiciary, Government and Law, which endorsed the passage of Senate Bill 15-59, or the Defined Benefit Plan Reform Act of 2006, said the government’s liability far exceeds its assets, especially when it comes to current government retirees and future ones.

The Senate unanimously passed yesterday S.B. 15-59 which seeks to amend the Northern Mariana Islands Retirement Fund Act by requiring that a referendum be held before any changes can be made by law on the existing pension program called the Defined Benefit, or DB, plan.

"The sole reason that our commonwealth has not declared bankruptcy is because, by law, it cannot. Clearly, however, we are bankrupt. Additionally, over the years, the commonwealth has been ‘legislated’ and ‘spent’ into direct conflict with the financial solvency provisions of our constitution," the committee report stated,

"The largest and most ominous debt is the approximately1/2 billion US dollar debt to the Defined Pension Plan and it continues to grow," it added.

According to S.B. 15-59, the cash-strapped government owes US$58,537.80 to each of the retirees and future retirees, estimated at 8,029, vested under the DB plan.

The bill stated that this unfunded obligation was created primarily by the unfunded prior service credits granted to the DB plan’s participants; amendments to the Retirement Fund Act granting early retirement concessions, new and increased benefits; and the government’s financial inability to remit actuarially required employer contributions to the fund.

"The Legislature recognizes that the commonwealth lacks the financial resources to pay off a US$500 million unfunded government liability to the Retirement Fund and that a rescue and reform plan is necessary to restore the Fund to a more sound financial footing," the committee report stated, adding that this liability precludes the CNMI from entering the bond market without incurring a huge interest rate.

Among the important provisions of S.B. 15-59 is a requirement to let the voters decide on future retirement benefits of government employees.

"Future proposals by the Legislature to increase retiree benefits will be in the hands of the voters, those who are ultimately responsible for financing the benefits of retirees. Additionally, the Act requires that any proposed increased in benefits must be funded by a new and dedicated source of funding," the committee report stated.

The bill also seeks to restrict future refunds to non-vested members of the DB plan, which costs the government about US$3 million every year.

It also changes the formula for the cost of living allowance.

"This new formula restricts the payment of the annual cost of living increase to the first US$20,000 of a participant’s annuity, adjusted annually for inflation…. The average retirement benefit currently is approximately US$23,900 per annum, therefore, having negligible or no impact on low income future retirees, while mitigating the exponential increases in COLA for the elite few," the committee report stated,

The government will introduce on January 1, 2007 the new pension system called the Defined Contribution plan which is designed to be self-sustaining through the employees’ own contributions.

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