400-plus govt workers convert to DCP

Over 400 government employees have converted to the NMI Retirement Fund’s defined contribution plan, but it is not clear how much impact this will have on the underfunded defined benefit plan.

Those who have switched to the DC plan represent less than 15 percent of the 3,000 Retirement Fund members eligible to transfer to the new program.

But Fund administrator Mark Aguon said that, while the conversion is certain to have an impact on the old defined benefit plan, the pension agency needs to conduct more study to determine the extent of the benefit.

“There is no simple answer to that,” Aguon said, when asked whether the amount of conversions is seen to alleviate the DB plan’s funding problems. “There are a lot of factors we have to consider. First, we must remember that 75 percent of our unfunded liability is for members who are already retired. We still have to review the numbers more carefully.”

The government had expected to save a substantial amount if eligible employees opted for the defined contribution plan. The new plan increases the employee’s share to 10 percent, while reducing government’s employer contribution to 4 percent.

Under the defined benefit plan, Class I members pay at a rate of 6.5 percent and Class II members-or older members-pay 9 percent of their compensation. The government’s contribution rate for the DB plan is currently at 37.4 percent.

The DC plan also offers members an option to directly manage their own contributions.

Aguon also reported that approximately 500 new government hires have enrolled in the DC program since it opened in July 2007.

The last day for existing government employees to enroll to the DC program was Friday, July 25, 2008. Only new employees will now be allowed into the program.

According to the Fund’s actuarial consultant, the Retirement Fund as of Oct. 1, 2006 had an accrued liability of $987.15 million, while have assets amounting to $472.7 million only. This translates to an unfunded liability of $514.46 million.

To ensure the Retirement Fund is able to continue paying out pension benefits, the central government must pay $51.62 million a year to the pension program, or about 37.39 percent of the government’s annual payroll.

The actuarially recommended annual contribution represents nearly one third of the revenue the government expects to collect this fiscal year.