Gov. Benigno R. Fitial signed into law yesterday afternoon a long-awaited pension reform bill that gives active government employees options on what to do with the money they have already contributed to the financially troubled NMI Retirement Fund.
Those options include allowing government employees to withdraw their contributions without being penalized, continue working and transition into the U.S. Social Security system, remain with the NMI Retirement Fund in hopes that the beleaguered pension program will shape up, or roll over their defined benefit plan contributions to a defined contribution plan, among others.
But Fitial said he signed the latest version of House Bill 17-315 “with reservations,” and urged the Legislature to amend the new law to remove the additional 4 percent employer contribution requirement for those who remain with the DC plan.
The governor's reservations stem from a Senate amendment wherein the employer is required to continue remitting a 4 percent employer contribution for DC plan members who elect to remain with the plan.
Fitial said this is “problematic” for two reasons.
One, the conversion to the Social Security program becomes more disadvantageous for members of the defined benefit plan. Two, the annual budget for the government's operations will become “unbalanced.”
This came even as a joint House and Senate panel is trying to come up with a compromise version of the $114-million budget bill for fiscal year 2013.
Fitial said that continuing employer contributions of 4 percent for DC plan members “makes the conversion less fair” because employees who elect to remain in the DC plan are maintaining an individual plan, thereby being the sole beneficiary of the employer contribution.
On the other hand, a DB plan member who remains in that plan has his or her contribution benefit all the members of the plan as a whole.
“In addition to the unfairness” of the employer contribution benefiting the defined contribution plan members, the budget submission for fiscal year 2013 does not take into account the additional obligation required as a result of the continuing 4 percent contribution rate. As such, the Legislature is urged to amend this legislation to remove the additional 4 percent employer contribution requirement or identify resources so as to ensure that the budget remains balanced,” Fitial said in his transmittal message to House Speaker Eli Cabrera (R-Saipan) and Senate President Paul Manglona (Ind-Rota).
HB 17-315, House Draft 1, Senate Draft 1 is now Public Law 17-82.
The bill's author, House floor leader George Camacho (Ind-Saipan), said the newly signed law “addresses a lot of the concerns of active members,” and thanked the governor for his swift action.
“But this is only one step of the many steps needed, because we still have to address the concerns of the retirees. We're not out of the woods yet,” Camacho told Saipan Tribune.
Active government employees have been waiting for this bill to become law, at least since an offshoot contribution withdrawal bill was introduced in December 2011, passed by the Legislature, but vetoed by the governor. An attempt to override the veto action failed in the House.
A new bill, HB 17-315, was then sponsored by the administration, specifically by Lt. Gov. Eloy S. Inos. Inos is set to meet this week with U.S. Social Security officials in the wake of the signing into law of a separate bill, HB 17-312, that expresses the CNMI's intent to join the U.S. Social Security program. HB 17-315 is an accompanying bill.
Joe Pangelinan, representing active government employees, said this took a nine-month journey, beginning with the introduction of House Speaker Eli Cabrera's (R-Saipan) HB 17-226 and later, Camacho's HB 17-315.
Pangelinan said government employees have realized that pensions from the U.S. Social Security may not be as generous as that of the NMI Retirement Fund but in the long run, they will feel a lot more secure when they retire at 62.
At the same time, they will also get an important Medicare benefit.
Also under the new law, employees will be able to get back 25 percent of their contributions after deciding to withdraw within 30 days and the remaining 75 percent will be disbursed to them within 90 days.
Pangelinan said the passage and enactment of HB 17-315 will enable many active DB members to get their money just in time for the holidays.
Every time HB 17-315 was on the House or Senate session agenda, dozens of uniformed police officers, corrections officers and other government employees showed up to support the bill.
The Fitial administration wants to transition government employees to the U.S. Social Security program and place the NMI Retirement Fund under the Department of Finance as part of the plan to address mounting concerns about the troubled public pension agency. Recent court actions have placed this plan on hold.
Fitial placed the NMI Retirement Fund under a state of emergency.
Gov. Benigno R. Fitial signs HB 17-315 into law yesterday afternoon as staff from the Office of the Governor look on. The measure is now Public Law 17-82.