Fund to sue govt or file bankruptcy

The NMI Retirement Fund management is planning to either file a lawsuit against the CNMI government or file for bankruptcy amid the Executive Branch’s plan to write off its outstanding retirement debts.

Fund administrator Karl T. Reyes made the proposal in a memorandum to the NMI Retirement Board of Trustees Thursday last week.

“The memo asks the board to take action, whether to file a lawsuit or file a bankruptcy because we’d be technically bankrupt if the plan goes through,” said Reyes in an interview.

He said the Fund’s legal counsel has advised that should the board choose to sue the government, it should be done before the bill becomes a law.

Between the two options, Reyes said that bankruptcy filing seems to be more complicated.

There is also a possibility that the federal government would come in to take over the program.

“If we declare bankruptcy, we close and the federal government comes in,” he said.

Board chair Joseph Reyes said that the board would deliberate on the administrator’s memo in its next special meeting this month.

The Fitial administration recently submitted two bills to the Legislature, which aim to overhaul the retirement system.

These are the Defined Benefit Plan Rescue and Reform Act of 2006, and a bill that aims to create a Northern Mariana Islands Public Employees’ Defined Contribution Retirement Plan.

The first bill asks the Fund to write off a $124-million current unfunded liability, suspend employer’s contribution, and purchase $40 million revenue bonds to fund the Commonwealth Utilities Corp.

The administration said the proposed measure would provide the CNMI government with a fresh start.

It said the government’s accumulated unfunded liability with the Fund totaled $123.7 million since 1995.

This is part of a $552-million total unfunded liability with the Fund.

This obligation was created due to prior service credits, early retirement bonus and increased benefits, and the government’s failure to remit required employer contributions, and low ratio of active members funding the plan.

“A rescue and reform plan is necessary to restore the Fund to a more sound financial footing,” reads part of the bill.

Gov. Benigno R. Fitial has said that the bill proposes to empower him as governor to suspend payments to the Retirement Fund for the remainder of FY 2006 or up to Sept. 30 this year.

To protect employees’ interests, he said that the central government would pay 7.5 percent on any suspended payment until they are paid in full.

The administration hopes to save about $11 million from this payment suspension.

The bill also requires the Retirement Fund to “purchase” through the Commonwealth Development Authority a total of $40 million revenue bonds for CUC.

The administration said this money would be used to rehabilitate CUC’s power generation plant.

The bond would then be paid by revenues generated by a rehabilitated CUC, at a simple interest rate of 7.5 percent over 20 years.

To improve fiscal solvency, the bill aims to increase Fund members contribution from 6.5 percent for class I to 12.5 percent and Class II from 9 percent to 14 percent.

The increase would be gradual at 1-percent increase per fiscal year until the contribution rate reaches the full percentage.

The second bill which aims to create a defined contribution plan will get rid of government unfunded liabilities since it would only deal with the actual contribution of members.

The governor said that passage of both bills, in addition to the Legislature’s approval of the fiscal year 2007 budget, are “initial steps in addressing this financial imbalance.”

The administration has submitted a $193.5-million budget for FY 2007.

This is $5 million lower than the current revised budget of $198.5 million and nearly $20 million less than the continuing resolution of $213 million.