Media: Are these plans premised on the withdrawal of the bankruptcy filing? What if it’s not dismissed?
Inos: The plan continues and the only way that it will not work is that if the bankruptcy proceedings continue. You can’t have both ways run at the same time but it is our hope that if the case is dismissed, we got greater flexibility to restructure the system as we envision that would allow for the, essentially address the social, the retirement needs of every government worker.
The Chapter 11 filing is essentially focused on the retirees, and that’s fine. But there are other aspects of the system that do not address other groups of employees.
For example, active employees who have not retired or active employees who are not members of the defined contribution plan, i.e. those members of the defined benefit plan. So our plan is to address all those three groups of employees. There’s got to be a little bit of sacrifice but in the end, everyone will have some kind of safety net that will take care of their social welfare needs to a certain extent.
Then there’s the members of the defined contribution plan who have nothing other than the defined contribution savings, which remain at the discretion of the employees. Those employees who previously transferred to the defined benefit plan from defined contribution plan and have left the government, they have essentially withdrawn their savings in the DC plan, what do they have? Nothing.
Media: So the plan now is to transition into U.S. Social Security System?
Inos: Yes, U.S. Social Security Administration permitting the transfer, a discussion that is currently ongoing, that we hope to transition those DB members, active members into Social Security. Social Security has advised that they would allow a five-year buyback. To retire under Social Security system, one must have had accrued earnings of a total of at least 40 quarters, that’s 10 years. This one will allow them five years or 20 quarters, so.other than the fact that they need to reach the age of 62 for early retirement or 65 or 66 for full retirement, all they need to do is work for another five years to fulfill that requirement.
We hope that those members of the defined contribution plan will also be covered under this thing so we will have the kind of safety net that we’re seeking for these folks absent the CNMI retirement system which we all know is not sustainable.
Media: We thought the CNMI government is negotiating a buyback longer than five years?
Inos: Yes, we’re trying to negotiate for a period longer than five years. Hopefully, 10 years or 40 quarters.
How long has the administration been communicating with Social Security?
Inos: Back in 2006, when we first came into office and we saw that this liability of the Retirement Fund is so huge that it would be unmanageable, so we embarked on a process to take a look at how can we save it and so we first looked at Social Security. Social Security at the time basically opined that ‘everybody or nobody in the system’ and so because of that we then opted to go into a 457 plan or similar to a 401K where we take people out of the retirement system and move them over here. The only problem is that’s a system that allows employees to basically manage their money, which is good, but you know money is in mutual fund, money market goes up and down. But when they quit government employment, they draw the savings out. It’s not a retirement system per se. Like a savings account.
So the responsibility is on us leaders to ensure that these folks are protected.
Media: Can the government afford going back to Social Security?
Inos: We can take a look at various sources. Keep in mind that, in the case of the employee side, the employee currently contributes between 9 and 11 percent, I guess, of their base gross salary to the defined benefit plan. The Social Security contribution rate right now is 4 percent. So there’s a spread there. There’s enough money, so we can take 40 percent of what they will receive under House Bill 226, OK, take that in, and pay Social Security, and that takes care of their thing and there still remains 60 percent that’s available within the Fund that they may draw or not, which is something we need to work out because we don’t want them to draw entirely and shut the Fund.
Media: What about the employer contribution?
Inos: For the employer, go back again. We’ve contributed basically 30 percent. What’s required under Social Security would be 6 percent so you’ve got that spread.
Media: So it’s taken cared of?
Inos: Well, in a way yes but then the question is, if we take employer contribution from there, what’s going to happen to the Fund? As it is right now, based on calculations, in the Fund there’s about $113 million, say $120 million, that belongs to the contributions of the active employees. So if you take that away from $240 million, you are left with $120 million just for the pensioners. For $120 million, at the rate of $60 million a year, it only takes you two years. So our plan is to stretch that.for a period of another two years. So that we’ve got enough breathing room to figure out how were going to fund it and so forth. But in the meantime, how do we do it? We stretch it for two years, the $60 million currently is almost entirely being drawn from the Fund to pay the pensions. If we say we’ll only draw 50 percent from the Fund to make the pensions.where’s the other $30 million going to come from, right?
Ten million dollars is already in the budget as a line item. So you got $20 million to go. I think what we like to see is work on those legislation that are currently on the table that’s supposed to reduce the liability… Hopefully we’ll come to maybe $15 million to $10 million that we would need at the end of the day. I think that’s a manageable situation.
Media: Where will that $10 million to $15 million come from?
Inos: I believe that if we take care of some of these things like stop the COLA, all those add-ons, I think we can save another $5 million. So we might be down to $10 million to $15 million. I think that’s manageable. We can find sources for that. As I said, all options are on the table right now.
Media: If negotiations with Social Security don’t work, can the government still maintain the NMI Retirement Fund by cutting 50 percent of the benefits?
Inos: We’re not proposing that. (It’s some lawmakers who are proposing that). We want to make the retirees [get their benefits]. That’s why we have to pump this thing. Now this scenario won’t allow new entry into the DB plan and this approach will not allow any new retirees from the DB plan so what you have basically is a closed system. If we’re disbursing now $60 million, every year that retirees go away, then that $60 million will keep reducing down until we pay the last [pension].
Media: What is going to happen on Tuesday during and after your teleconference with Social Security?
Inos: Our decision right now is, Social Security permitting, we’re going to Social Security. If they say “no,” we need legislation, then we’re going to do legislation. And if we can’t do that, then we’ll set up something that’s is equivalent to a Social Security system but still allows for certain benefits and so forth. But I tell you, we can’t afford the existing retirement [system]. It is not sustainable. Doing nothing is not an option.
Media: Why a five-year buyback?
Inos: Five years, as we understand it, is already provided for by law. What we’re trying to see is if we could get more than five years. Ten years, but see it really varies after the five years. Because like me, I have creditable services from the private sector for which I am eligible for Social Security services wages and so forth. So if have four years of that, then plus five, is nine, so all I need is one [year] more. So the work of those people in the private sector [is credited]. The work of those people out in the private sector in the past [is credited]. That’s why we have U.S. Social Security numbers because they keep track of all those.