Acting governor Eloy S. Inos said yesterday that a U.S. Social Security buyback will now be made “voluntary” rather than mandatory among many members of the NMI Retirement Fund, as part of the Fitial administration's plan to reform its beleaguered pension program.
The administration's plan is to implement the Social Security program effective Oct. 1, 2012. This latest development of making it voluntary rather than mandatory could have an impact on the whole plan, which would be known once a final bill from the administration is released to the Legislature.
Inos, after a closed-door meeting with Senate and House members, said this voluntary buyback provision will be included in a second bill that the administration is now drafting.
“It will be here, but the buyback will be a voluntary thing but only if authorized by the Social Security [Administration],” Inos told reporters on Capital Hill between meetings.
Inos provided lawmakers yesterday with a second draft of the legislation titled, “CNMI Pension Reform and Recovery Act of 2012,” which still doesn't have the “voluntary buyback” provision.
“The problem with the buyback is, we will never settle that issue. Some people say 'I don't need a buyback. I already have 40 quarters so I don't need a buyback.' So okay, but some people need the buyback. So how do we deal with that thing?” asked Inos, who is overseeing the Fitial administration's Retirement Fund and Social Security issues.
Inos said the second main issue is that a buyback would require a payment of premium.
“And how do we do buyback that requires everybody to pay when we refunded or their contributions have been withdrawn? So rather than go into that computation, we say we provide here that a buyback is going to be negotiated with Treasury and upon approval, it will be a voluntary thing on the part of the participant. And when they do that, they have to pay the premium,” he added.
Basically, those who decided to withdraw all their money won't be able to pay the premium for a buyback, he said.
Acting House speaker Felicidad Ogumoro (Cov-Saipan) separately said after emerging from the meeting with Inos that the House will be introducing this second Social Security legislation at the next session.
She said Speaker Eli Cabrera (R-Saipan), who is currently off island, will likely introduce the legislation. Cabrera is the author of a bill that allowed the withdrawal of Retirement Fund members' contributions but the governor vetoed that legislation.
Senate President Paul Manglona (Ind-Rota) said it's “good” that a Social Security buyback “is no longer mandatory but optional.”
Lawmakers mostly wanted to learn more about the Fitial administration's plan on the NMI Retirement Fund's defined benefit and defined contribution plans rather than raise concern about the eight-page draft bill in front of them.
The bill being drafted amends the Commonwealth Code pertaining to the defined contribution and defined benefit plans of the CNMI's retirement system to allow for the transition to participation in the federal Social Security system.
In its findings, the draft bill says the CNMI government faces an enormous unfunded governmental obligation to participants in the retirement system.
Moreover, for several years now, the government has been unable to follow a fiscally sound deficit reduction program, the draft bill says.
“The Legislature recognizes that the Commonwealth lacks the financial resources to pay off the present unfunded government liability, and that a rescue and reform plan is necessary to restore the system to a more sound financial footing,” it adds.
The government owes the Retirement Fund over $320 million in unpaid employer contribution plus interests.
Last week, the House passed an administration-drafted bill that “expresses the desire” of the CNMI to have the insurance system commonly known as “Social Security” extended to the officers and employees of the CNMI government and its political subdivisions and instrumentalities.
Gov. Benigno R. Fitial placed the Fund under a state of emergency after a federal judge dismissed the Fund's Chapter 11 bankruptcy petition.
The administration wants the Fund to be placed under the Department of Finance, mostly to disburse retirees' pension, while active members are transitioned to the U.S. Social Security retirement system if they so choose.