A day after the enactment of the CNMI Pension Reform Act of 2012, several concerns were aired by a concerned citizen who pointed out that the legislation was enacted without thorough review and cost-financial analysis to determine its impact on the already troubled pension program.
A retiree's son, Glen Hunter, enumerated the potential negative effects of the new law in his postings in the Commonwealth Retirees' website.
“The impacts this law will have on the NMIRF are not truly known. This is due to the fact that no analysis has been provided and it appears that no fiscal impact studies were ever conducted,” he said.
Hunter also described the measure as potentially dangerous because it allows the administration to escape mandated contributions to the Defined Benefit plan.
Hunter said the new law, which allows members to withdraw their contributions without separating from the government, compounds rather than reduces government obligations. He said there was no committee report issued when the law was still a bill and that it lacks any financial report or a cost-benefit analysis, including an actuarial report from the Fund.
The new law, also known as Public Law 17-82, mandates that within 30 days, the Fund pay out 25 percent of members' contributions plus interest to those who elect to withdraw from the DB plan. The remaining 75 percent will be paid out to the member within 90 days.
“Again, how much would that be if all 2,900 DB plan members who are still active employees withdraw their contributions plus interest?” asked Hunter.
The law also allows an employee to roll over their DB contributions to the Defined Contribution plan and become a member of that program. Hunter said the DB plan was never set up to be a savings plan but a retirement benefit plan.
“The DBP was never set up to be a savings plan. It was a mandated retirement benefit plan. Any withdrawals done prior to the payout of benefits should be either forcible rolled over into an IRA or 401K type plan or subject to fees and penalties,” he said.
In the law's section 203 (a), it states that if a DB member does not pull out of the plan the government will be forced to pay both the DBP member contributions and the Social Security taxes, resulting in higher expenses for the CNMI government.
“There is no way of knowing even a ballpark [figure] on how many will remain and how much that would require. This is simply magic in the form of smoke and mirrors to try and make it appear fiscally sound for budget purposes. It is not,” said Hunter, adding that the new law actually increases the government's retirement obligations.
“Sadly, no financials are available to provide the insight needed to discuss these laws properly. That alone should be justification as to why the Legislature and the administration should have done proper due diligence before acting on these bills and before the governor signed them into law. That was not the case,” added Hunter.