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Salary cut to result in $4M loss for NMI Fund
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Posted on Mar 28 2006
The proposed 10-percent across-the-board salary cut among government employees would translate to an annual loss of at least $4 million in contribution funds to the NMI Retirement Fund, according to a Fund official.
Fund administrator Karl T. Reyes said he hopes that the government would carefully look at this impact, which, he said, would mean reduced benefits to employees.
He said it is not enough that the Legislature just pass a law to allow the salary cut as suggested by the Fitial administration. He said the Legislature would also have to amend the Retirement law to reflect the reduced funding.
“If they cut 10 percent from everybody, the Fund is going to lose a big money,” said Reyes.
The $4 million estimated loss takes into consideration “a low estimate” of 67 percent being taken from the $198 million annual appropriation for salaries.
The 10-percent cut would amount to $13 million ‘savings” for the government, Reyes said, but taking the employer’s 24-percent contribution rate from this would mean a loss of $3.2 million to the Fund.
The Fund would also lose nearly $900,000 from the employees’ contribution, which is set at 6.5 percent for Class I members and 9 percent for Class 2 members.
There are some 5,000 government employees in the CNMI. Only about 300 of them belong to Class 2, Reyes said. This group of employees became members of the Fund before 1989.
Reyes said that the 10-percent salary cut would mean a loss of $333,000 in contributions every 15 days.
“With this reduced contribution, we also have to reduce the benefits. They have to amend the law to do that,” said Reyes.
The Fitial administration has backed out from its initial plan to cut employees’ work-hours, citing difficulty of implementation. The administration has now turned to the Legislature to cut salaries by 10 percent.
The administration said a legislated salary reduction could be implemented sooner than a work-hour cut, which requires a 60-day notification period.
