CNMI RETIREMENT FUND SOLUTIONS RAISE CONCERNS

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Higher contributions, reduced benefits, government inputs suggested

By Villegas Zotomayor

SAIPAN, CNMI (Marianas Variety, Feb. 29, 2012) – Cutting of benefits is one of the proposed solutions to keeping the pension agency viable; however, Retirement Fund Board Chairman Sixto K. Igisomar believes it’s an uphill battle and requires input from the community.

"Fund can’t outright reduce benefits," he said during Tuesday’s special board meeting.

Igisomar stated that cutting of benefits requires necessary debates among members of the community.

On Tuesday, visiting Buck Consultants consulting actuary and principal Dylan Porter made a presentation to the Fund officials on his mathematical projection of the Fund’s life and one of the possible ways to prolong the Fund’s life is cutting of benefits.

Igisomar said, "We are not picking a position yet. That is why Dylan is giving us the numbers. It is something we have to justify."

Two years ago, Buck recommended to the lawmakers that either adding more contributions or reducing benefits would make the Fund viable.

During his visit in May 2011, Porter again made a similar call to the lawmakers as he presented several scenarios.

At that time, Fund assets were at $328 million level.

He suggested for the Fund to remain viable, one option would be to eliminate cost of living allowance and future disability benefits. This cut in benefits would require a corresponding $42 million in contribution from the central government.

A second scenario calls for removing COLA and disability benefits and cutting of pensions 10 percent across the board.

Along with this cut, the projected contribution of the government stands at $35 million a year.

The third scenario is 25 percent cut in pension across the board along with the removal of COLA and disability benefits.

In this option, government must contribute about $25 million a year.

The biggest possible cut is 50 percent across the board, given that the government can only contribute about $9 million a year.

These same scenarios were run Tuesday as the Fund worked on various possible combinations of benefits cuts and contribution increase.

At $257 million in assets, if the Fund cuts benefits by 50 percent, and government continues to remit $13 million and with the Fund earning about 7.5 percent in the market, the pension program is projected to last up to 2028.

With the current pay schedule of 100 percent benefits, for fiscal 2012, the Fund is projecting to pay about $69 million in benefits and this will continue to increase in FY’13 to $70 million and close to $72 million for FY’14.

In another projection, the Fund is expected to last until 2024 if the Fund will cut benefits by 30 percent.

This projection was based on the Fund having $257 million in current assets (combining the assets reserved for active employees and the pensioners), the government remitting only $13 million and interest is pegged at 7.5 percent.

In another projection, using only the figure $144 million as current assets (not including the $113 million reserved for the active employees), if the Fund cuts benefits in half, and government remits $10 million in addition to the current $13 million contribution, the Fund will last until 2026.

Keeping the benefits at 100 percent, contributions remaining at $13 million and interest sitting at 7.5 percent, the Fund will crash in 2017. This projection was based on a $257 million funding level.

If the Fund will continue to pay out benefits at 100 percent with the current funding level, Porter said, "Without contribution, the Fund will crash in two years."

Meanwhile, Commonwealth Retirement Association (CRA) board chairman Lorenzo "Larry" Cabrera said, "I believe the retirees are not going to agree to 50 percent pension cut."

"We need to come up with a viable solution that is sustainable even if it needs reducing the pension rate that we are getting right now. We can go maybe one-third reduction. No problem. I am sure the people will accept that," he added.

He also said, "We got to face realities. No money is no money."

The CRA board chairman believes that the government, if not legally, is morally obligated to take care of the people that work in the government.

For Cabrera, it is imperative that the various stakeholders sit down and come up with a solution.

He relayed to the Fund board that he had a lengthy talk — six hours — with Governor Benigno R. Fitial who told him that $800 million will solve the Fund’s problems.

He said he welcomed this idea from the governor; however, what puzzles him is how this $800 million is going to be generated. "Where’s the money?"

Igisomar, meanwhile, told the board the need to discuss actuarial rate. "We need to have a serious discussion on actuarial rate."

He raised the issue whether the rate is something that needs to be changed by statute.

For trustee Adelina Roberto, it inflates the asset. "That is not reality."

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