NEGLECTED CNMI RETIREMENT FUND IN DIRE STRAITS

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Government debt to fund nears $238 million

By Alexie Villegas Zotomayor HAGÅTÑA, Guam (Marianas Business Journal, Jan. 31, 2011) – The Commonwealth of the Northern Mariana Islands’ government owes the NMI Retirement Fund US$4.8 million in contributions that remain unremmitted since August last year, on top of the US$231 million that the court awarded the retirement agency. As a result, the retirement fund runs the risk of depleting its assets, pension officials warned.

"Consequently, the Retirement Fund system funded ratio may drop to zero within six to seven years assuming moderate returns on investment, as opposed to the eight to nine years previously indicated," Retirement Fund Administrator Richard S. Villagomez wrote to the central government on Jan. 3.

Villagomez said the last government remittance was made on Aug. 31, 2010. "The effect of not receiving this contributions in the short term is to increase draw downs from the fund’s portfolio to cover larger funding shortfalls," he said.

The pension office’s budgeted drawdown is US$54 million in the last fiscal year. So far, it has made US$15 million in draw downs since October last year.

During a board meeting on Jan. 14, NMIRF Board Chairman Sixto I. Igisomar said the agency would have to increase the actual budgeted drawdown "if we are not receiving any payments." He also said that the Fund would have to revisit the budget for the current fiscal year and see if the budget for draw-downs could be increased.

Villagomez also reported in the same board meeting that the NMI government promised to make payments by February.

As has been its practice, the retirement fund office would draw-down from its investments to cover the shortfalls in funding to defray cost of operations.

Its stock market portfolio began at US$18.5 million in 1987 and reached a peak of US$510 million in 2007 and plummeted to US$396 million in 2008 and further went down to US$348 million in 2009.

Fund reported that returns on investments for the current year "are good." In a report to the Board of Trustees, Villagomez said the estimated market portfolio value of the Fund as of Dec. 31 was approximately US$320 million with 4.3 percent estimated return.

The estimated calendar year to date return from January to December 2010 was 10.99 percent.

"Overall, last year, was an excellent year for returns. The markets have been generous in performing on the plus side. It mainly helps to stabilize the portfolio from the effect of our draw-downs. Our returns our good - very good," he said.

Villagomez said the agency’s hypothetical portfolio would have been 60 percent funded instead of 30 percent funded if it were not making draw-downs. He also reported that the unfunded liability, as per Wilshire and Associates’ October 2010 report was estimated to be around US$680 million.

But whatever gains the retirement agency gets from the investments would be negated by the continuous draw-downs, Villagomez said.

"We must continue to emphasize the urgency of the situation that intensifies each day appropriated contribution amounts are not received and necessary benefit reforms toward stabilizing the system are not implemented," Villagomez said.

The NMI government was considering reviving a plan to float US$200 million bond. The proceeds would go to the retirement fund to cover for the government debt with the agency that has reached the US$300 million mark. A big chunk of the money would satisfy a court order in 2009 that recognized the NMI government owes the Fund US$231 million in unpaid employer contributions.

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