GovGuam's New Retirement System Being Rolled Out

Employees have two new retirement plans they can opt to participate in

By Shawn Raymundo

HAGÅTÑA, Guam (Pacific Daily News, May 20, 2017) – The overhaul of GovGuam’s retirement system is in full swing as officials continue holding seminars and informational sessions with government agencies to go over details of the new retirement plans.

To address the thousands of government employees who may not have generated enough revenue from contributions and investments under GovGuam’s Defined Contribution plan, legislation was enacted last year to reform the system.

Aimed at providing retirement security and a floor of benefits for those DC plan members who were in jeapordy of not having enough money in their savings account to retire on, the reform act opened two new retirement plans for them to opt in to.

During the election period, which opened April 1, current DC members can choose to remain in the plan, but with a higher contribution rate of 6.2 percent, or they could switch over to one of the new plans – the Defined Benefit 1.75 plan or the Guam Retirement Security Plan, which is modeled after Social Security.

According to Government of Guam Retirement Fund Director Paula Blas no one has made the switch yet as it’s too early for them to decide. For now, the Retirement Fund is making its rounds to all GovGuam agencies to inform employees of the new plans.

So far, the Retirement Fund has completed about 50 sessions and met with 1,500 employees from agencies including the visitors’ bureau, education department, the university and community college as well as parks and recreation, and public health. The seminars, she said, will continue through the summer, likely concluding in July.

The next step for the agency is to begin responding to forms that employees have been filling out, requesting a retirement income comparison, Blas said. So employees know which option is best for them, the form breaks down how each individual’s retirement savings will look under the different plans.

“The Retirement Fund will get those out by mail, so at the time they decide what they want to do that’s when elections will take place,” she said.

Current DC members have until Sept. 30 to decide which plan to go with, while all new government employees hired after April 1 have until Dec. 31 to select their retirement plan.

Blas said the fund probably won’t have a clear idea of the amount of transfers until about mid-July. The number of those who switch over to the DB 1.75 plan will determine how much GovGuam’s unfunded liability will grow by.

For more than a decade, the Retirement Fund and certain lawmakers worked to overhaul the system after recognizing that roughly 8,000 DC plan members had an average of $40,000 saved for retirement.

The DC plan was created in 1995 to replace the government’s Defined Benefit plan, which was too costly. When the Benefit plan closed, it left behind the unfunded liability, which is currently around $1.3 billion.

Gov. Eddie Calvo and his administration had wrestled with the retirement reform act believing it would add another $173 million to the liability. Retirement officials have contested that at most it could add $142 million, and that’s if everyone in the DC plan switches to the DB 1.75 plan.

In DC plan, a retiree’s benefits depend on the individual’s amount of contributions into retirement. The contribution rate for both employee and employer have been 5 percent.

Under the reform act, the mandatory contribution rate for employees under the DC plan and employer will increase from 5 percent to 6.2 perdent.

The Defined Benefit 1.75 plan, or DB Lite, is so named because it provides retirees an annuity equal to 1.75 percent of their average annual salary for each year of service.

DB Lite members will retire with survivor and disability benefits for their spouse and children. The person will also be more responsible for their retirement, as the minimum contribution rate is set at 9.5 percent along with a mandatory 1 percent contribution to the Deferred Compensation plan – the government’s equivalent to a 401k plan.

The Guam Retirement Security Plan is essentially a cash balance pension plan where the interest credit rate – guaranteed rate of return – would be set at 4 percent annually. Cash balance plans are similar do DC plans in that an employee’s benefits are based on the individual’s account balance.

Pacific Daily News
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