Fund hikes contribution rate

The NMI Retirement Fund has increased the employer contribution rate for all government departments from 24 percent to 36.7727 percent, in a move expected to cause additional strain to the agencies’ budget.

Fund administrator Karl T. Reyes announced the new employer contribution rate increase in a May 20 letter to all government units. The rate increase was implemented in the last pay period, which ended June 3.

“As mandated by law, the NMI Retirement Fund is notifying all departments that the new contribution rate is hereby increased to 36.7727 [percent] from the current 24 [percent], effective immediately. This increase is necessary to ensure that the Fund continues to meet its current as well as future obligations. Please make the necessary adjustment factoring this new rate,” said Reyes.

He said the Fund’s board of trustees decided to raise the government employer’s contribution to the program pursuant to a 2003 actuarial study.

The central government’s accumulated debt with the Fund now totals $80.8 million.

“It’s pretty much like a loan. If you borrow money and don’t pay for a long time, in order to catch up, you need to increase the payment. The government needs to catch up,” said Reyes.

He said the actuarial study was done in 2003 by Bucks Consultant, which later became Mellon Financial.

The study, Reyes said, wanted the Fund to impose the rate hike in fiscal year 2004, but the Fund’s board postponed it to this year.

Reyes said the increase is needed to ensure that the Fund complies with its mandate, which is to bring the Fund’s assets to $1 billion by year 2020. As of March this year, he said, the Fund registered only $394 million in total assets.

Finance Secretary Fermin M. Atalig said, however, that the government cannot shoulder the rate hike within the fiscal year.

“It’s not in the budget,” said Atalig, noting that it would have to be included in the FY 2006 appropriation.

Reyes said that “most” government agencies also said that they could not implement the increase. “It’s for the same reason. They have no budget for this,” he said.

Reyes said the Fund discussed the issue in yesterday’s meeting with Atalig and Management and Budget director Ed Tenorio.

In its presentation last January, Mellon Financial reported that the Fund’s unfunded accrued liability has reached some $517 million, with a large portion of it owed to its Class II retirees and beneficiaries.

It said the total accrued liability of the Fund as of Oct. 1, 2003, totaled $902.6 million but its valuation assets at that time only reached $385.7 million.

Accrued liabilities refer to obligations for active members, inactive members, including contributions held for non-vested terminated employees, and retired members and their beneficiaries.

Liabilities for Class II members—those who became members before 1989—totaled $651.2 million; for Class 1 members— those who became members after 1989—it’s at $251.5 million. Based on its asset valuation ($385.7 million), $211.9 million would go to Class II members, while $173.8 million would go to Class I members. As of Oct. 1, 2003, unfunded accrued liabilities for Class II members totaled $439.3 million and $77.7 million for Class I.

The Fund has nearly 8,000 members.

Mellon Financial noted that under the setup, retirees under Class II are driving up the cost at $506.4 million, while under Class I, retirees’ payment amounts to $54.5 million.

Class I active members are the ones bringing the price up at $192 million, the consultant said.

The government pays only 4.7 percent of the cost for Class II while under Class 1, the government pays more at 11.7 percent of the normal cost, Mellon Financial said.

The normal cost, defined as the portion of the total cost of future benefit assigned to the current year, totals $26.3 million, with the government paying 10.5 percent of it amounting to $15.9 million and the employees paying 6.9 percent or $10.4 million.

The government currently shoulders 24 percent of the retirement contribution for government employees.

Class 1 members contribute about 6.5 percent of their salary to the Fund while Class 2 or the “old members” remit about 9 percent of their salary to the Fund. (with Liberty Dones)