Rebuttal to attack on Fund trustees: Jumping to erroneous conclusions

[B][I]Second of three parts[/I][/B]

The political season being what it is, I do feel that the Fund’s board of trustees have been done an injustice as a result of comments that appeared in a recent Letter to the Editor published in this paper (Friday, April 17), titled: “The insolvency of the NMI Retirement Fund.”

The comments which follow are offered as a clarification and an independent assessment of several issues that appeared in the above letter as considered from the point of view of an economist and one who has not been asked to reply on behalf of, or in defense of, the Fund’s trustees.

Being a member I am interested in the long-term financial viability of the Fund and submit my opinion of the stewardship of Fund’s operation in contrast to that of the writer of the above letter. In the vein of Nehru’s observation, “it is right that we should encourage honest criticism and have as much public discussion of our problems as possible.”

The various published accusations leveled at the Fund’s trustees and my personal response to each follows—all of which are independent of Fund encouragement, endorsement or sanction. I alone bear the responsibility for the accuracy my comments and opinions.

Accusation or Question: “What has it done (i.e., the Fund) to help resolve, with finality, issues that should have been discussed in deliberative fashion over what’s politically incorrect?”

Response: This statement relating to being “politically incorrect” doesn’t make any sense to this reviewer. What does being “politically incorrect” have to do with the long-term financial security of the retirees?

The record of actions taken by the board and its chairman is replete with attempts to resolve this serious issue patiently and amicably with the only two bodies capable of solving the crisis and those are the central government and the Legislature which, only now—at 5 minutes until midnight—strive to shift the blame for crippling the Fund away from themselves to the trustees. It is nothing short of an outrageous diabolical and cynical attempt to deceive the members of the Fund as to where the real blame for the disastrous condition of the member’s future retirement security actually and truly lies—with the government and the Legislature—and nowhere else.

Accusation or Statement: “As a member of the Fund, I know it is vital to unravel issues that have been sidestepped by the Fund as it promotes all the wrong information.”

Response: Again, a distortion of facts deliberately designed to shift responsibility away from both irresponsible branches of the government. The accusation is untrue and the writer should cite any proof in his possession that the “Fund promotes all wrong information.” The only wrong information being promoted by government spokesmen is false, politically motivated distortion intentionally designed to deflect the real fault away from the administration and the Legislature.

Accusation or Question: “For instance, in the hiring of money managers, have trustees imposed accountability to this group of experts on investment recommendations that end up in losses by the millions of dollars?”

Response: The doubt expressed in the above statement cannot withstand critical scrutiny as the trustees adhere to the strict maintenance of the highest level of fiduciary responsibility. I have been assured that the trustees have put in place a mechanism where there is no tolerance for deviation on the part of all money managers.

This “watch list” mechanism serves to assure the trustees that the most prudent “best execution” practice is exercised. Should there be “findings” to the contrary the money managers would be “fired” and the trustees sued by this economist and other Fund members in a class action. Believe me, the trustees know that.

Accusation or Question: “Have trustees diligently looked into this vital aspect involving failed investments?”

Response: Of course they have—it’s their fiduciary responsibility. However, recent events concerning well publicized losses in the stock market and other investments are now well known to have been a result in part of inadequate federal government regulation, inept politicians, greedy bankers and financiers. The condition of the money markets are aired daily on CNN.

Accusation: “It is obvious that trustees have simply allowed these managers to go scot-free as though the Fund still has millions more to spend wastefully, freely!”

Response: This statement is so ridiculous it doesn’t deserve to be addressed and it’s still yet another in the long list of distortions quoted above designed to confuse Fund members and shift blame away from the administration and Legislature.

If the central government’s neglect in making its obligatory employer’s contribution payments wasn’t enough bad news for the future financial security of the members, those who have kept up with the Fund’s losses in the stock market know that the time to follow the advice of Fund management is now. It’s possibly the last chance to mitigate some of the financial damage that has been sustained by the members from the unprecedented market decline. First, realize that it is not smart—and it is the worst possible time—to withdraw funds from a sinking market to meet pension payments. Currently the Fund is forced to do just that and to sell at the very worst time when the value of the members’ investments is so low. Second, realize that somewhere at these low market levels will be the best time to buy. Just where and when that level arrives I don’t know, but the Fund’s money managers should be positioned to recognize the moment and seize the opportunity to invest at bargain prices.

Of course, in order to do this, the Fund needs the capital ready and available to invest and the only place to get it is from the central government in an amount sufficiently large enough to recover some of the loss previously experienced. I know Fund officials know this but obviously certain armchair, backseat advisers in the central government and Legislature apparently do not. If something isn’t done, and soon, the government’s cancer of indifference and neglect will soon result in the death of the patient, namely, the Fund.

Accusation: “It is tantamount to the stimulus package of unbridled spending, only to result in the Tea Party where taxpayers are saying, “Keep Your Change” or “Chains we don’t deserve!”

Response: Here the writer attempts to mix and match two different unrelated issues in a further attempt to damage the reputation of the Fund’s trustees. The federal income tax rates levied in the United States have little relevance in the CNMI as a result of the NMI’s 90 percent tax rebate, which effectively translates to little tax on income earned on the islands. What the Fund members do not deserve are inaccurate statements that distort facts and confuse issues.

Accusation or Question: “Understandably, it is difficult navigating investment opportunities under the volatility of the prevailing global financial crisis. But then, isn’t it prudent for trustees to liquidate investment portfolios in order to avert further losses in Fund money by the millions of dollars as has happened recently? What does it take to bring you into equilibristic (sic) reality check?”

Response: By this observation it appears that the writer advocates “cashing in” all investments and liquidating the portfolio but no advice or suggestions are offered as to how to manage the resulting cash. Would he want it deposited in a local bank at low interest, or divided among the members of the benefit plan, or purchase land, or what? This is a totally unrealistic statement considering that such action as liquidation may be against CNMI law and is fraught with disastrous consequences too numerous to mention in the space available. Not the least of which being that the government decided to instigate its own retirement plan years ago and opted out of participation in the U.S. Social Security program at that time.

An “equilibristic (sic) reality check” may be needed—whatever that is! But I dare say there is a greater need for reality check within the two branches of government and not within Fund trustees.

[B][I]To be continued.[/I][/B] [I][B]William H. Stewart[/B] via e-mail[/I] [I]P.S. Since 2004 I have published more than 50 “op-ed” pieces concerning the deteriorating condition of the member’s retirement security. These articles may be reviewed in the archives of this paper by entering my name in the archives search bar. For economic credentials Google: saipanstewart.com (open on “Home”).[/I]