NMI House Committee Recommends Bond To Pay Fund Debt

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Retirement fund’s current unfunded liability over $1 billion

By Emmanuel T. Erediano

SAIPAN, CNMI (Marianas Variety, May 21, 2013) – The Northern Marianas House special committee on the retirement system is recommending the passage of a bill that will allow the Commonwealth Development Authority (CDA) to float a $300 million pension obligation bond to "save" the dying Retirement Fund.

House Bill 18-50 is co-sponsored by Reps. John Paul P. Sablan, Covenant-Saipan; Trenton B. Conner, R-Tinian; Roman C. Benavente, R-Saipan; Chris D. Leon Guerrero, Covenant-Saipan; Ramon A. Tebuteb, R-Saipan; and Ralph N. Yumul, R-Saipan; and Speaker Joseph P. Deleon Guerrero, R-Saipan.

The committee, in its report, stated that the CNMI government "has provided very generous and expensive retirement benefits to its members."

These benefits, the panel said, have been expanded over the years by laws that were subsequently enacted following the creation of Retirement Fund.

These include Public Law 3-99 that increased retirement fund benefits; P.L. 5-48 that gave additional-service credit to certain members; P.L. 7-39 that offered generous cost of living allowances or COLA to annuitants; P.L. 7-40 that allowed double-dipping; P.L. 8-24 that added overtime work service credit; P.L. 8-30 created an early retirement option; P.L. 8-31 that provided additional COLA; P.L. 8-39 that granted prior-service credit; P.L. 9-25 that refunds member-paid employer contributions; P.L. 11-25 that permits retirees to receive survivor benefits; P.L. 15-31 that allows government employees to waive salary and continue receiving retirement benefits; P.L. 15-61 the prohibits the Fund from paying less than the full pension to retirees and P.L. 15-98 that allows members with 15 years of service to withdraw their contributions.

On top of all this, the committee said the CNMI government failed to remit its required payments in employer contributions.

It added that the government imposed more burdens by enacting laws that diverted supposed revenues from the Fund. These are P.L. 9-28 that diverted amusement funds from the Fund to the manamko’; P.L. 10-19 that transferred the burden of paying group health and life insurance to the Fund; P.L. 10-88 that gave elected officials the right to waive their salary and continue receiving retirement benefits; P.L 11-2 that allowed retirees in certain occupations to work for up to two years without losing benefits; P.L. 14-98 that exempted the Public School System from paying the full contribution rate; P.L. 15-15 that suspended employer contributions to the Fund from fiscal year 2006 to fiscal year 2007; and P.L. 15-24 that created austerity Fridays which reduced employee contributions but maintained full benefits for all employees.

The CNMI government now owes the Fund $320 million. The Fund, for its part, has an unfunded liability of over $1 billion. Roughly 3,000 retirees and 4,000 active members are relying on present and future retirement benefits which now amount to over $70 million a year.

By a vote of 6,876 in favor and 4,152 against, House Legislative Initiative 17-5, allowing the CNMI government to float a pension obligation bond, was ratified in the Nov. 2012 elections.

According to the committee report, H.B. 18-50 "will not create an additional liability on the part of the commonwealth but authorizing CDA to issue a pension obligation bond would only substitute a bond obligation for a judgment obligation."

[PIR editor’s note: Meanwhile, prominent CNMI lawyer Michael Dotts says the pension obligation bond should not be used to pay the government's debt to the Fund. Managing director of Wilshire Associates Maggie Ralbovsky, the Fund's investment consultant, says the bond would cost the government about $36 million a year in interest alone.]

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