GovGuam Explores Possible ‘Hybrid’ Retirement Plan

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Bill introduced includes defined benefit and contribution elements

By Jerick Sablan

HAGÅTÑA, Guam (Pacific Daily News, Sept. 23, 2014) – Members of the community along with senators will discuss the potential adoption of a hybrid retirement system for the government of Guam, as outlined in a recently introduced bill, during a public hearing scheduled for 6 p.m.

Bill 394 is based on retirement reform developed by the late Sen. Ben Pangelinan and drafted in collaboration with Government of Guam Retirement Fund.

The new plan includes both a defined "floor" of benefits and a deferred compensation program as the defined contribution component.

While current Defined Contribution Retirement Plan members only receive benefits equal to the growth of their investment, Hybrid Plan members would receive a guaranteed annuity based in part on a formula, which will be discussed during the hearing.

The Hybrid Retirement System will be available to all GovGuam employees and mandated for new hires on or after January 1, 2015, if the bill is passed into law.

During the hearings, Retirement Fund experts will be present to explain in detail the benefit levels and policies of the proposed Hybrid Plan and how the new plan will affect both current and future GovGuam employees.

Vice Speaker Benjamin Cruz, D-Piti, who introduced the bill, said it was important the bill move forward because government retirees wouldn't have enough to retire on the current plan.

The plan would give a retiree a minimum floor of benefits much like Social Security, he said. Cruz said although the government is trying to get on to the Social Security, it's not a guarantee it will.

"It's the best way to provide for DC employees," he said.

Public Auditor Doris Flores Brooks said the new plan addresses the plight that current Defined Contribution plan members face after retirement, which is not having enough to live comfortably.

She said the hybrid plan is like the Defined Benefit plan that the government had prior to 1995, which has a current unfunded liability of more than $1.3 billion. It's a hybrid in that it sets aside some of the employees' money for contribution, she added.

She said she's concerned that the government isn't considering Social Security, which would be a good supplement to the plan.

"I'd like to see Social Security not as an either-or, but rather as a plus in addition to the new plan," she said.

Retirement Fund officials have opposed implementing Social Security because of the costs, she said, but Brooks said retirees will benefit from being in the federal program.

Brooks said the hybrid plan will mean more unfunded liability in the future and encourages Guam to get into the Social Security system.

David John, president of ASC Trust Corporation, said he's very concerned about the proposed Hybrid plan because it's basically a Defined Benefit plan, which is too expensive for the government, citing the more than $1 billion in funded liabilities.

John also was concerned that no government accountants were informed about the proposed plan. He said he was at a conference with government accountants and none of them could tell him about the proposed plan, which concerns him since it will have a big impact on government agencies.

John, who's also the vice chairman of the Guam Economic Development Authority board, said the Retirement Fund didn't talk to GEDA about how the new plan would affect the bonds the government has. This could affect the government's borrowing capacity and bond rating, he said.

"There's so many things wrong with this," he said.

John said there does need to be a change in the current retirement system, but said it needs to be done right.

"We can't do something this big without any community input," he said.

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