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Penalty eyed for early withdrawal of pension
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Posted on May 31 2008
A senator wants government employees to pay a 10 percent penalty for withdrawing their pension contributions early.
Senate President Pete P. Reyes has introduced a bill allowing the NMI Retirement Fund to charge an early withdrawal penalty of 10 percent of a member’s contributions, excluding interest earned.
The bill would also authorize the Fund to apply from the refund any amounts owed by the member to the pension agency.
The Fund has reported a rash of refund requests after the previous Legislature enacted a law extending the early withdrawal option to employees with 15 years of government service. Previously, only employees with 10 years of service were able to withdraw their contributions.
According to Fund administrator Mark Aguon, since the law was enacted last year, contribution withdrawals had averaged $500,000 a month.
This is seen to result in a mixture of advantages and disadvantages for the Fund.
Aguon said it likely to benefit the pension program in the long term. The more people taking out their contributions, the fewer future retirees will there be. That means the pension agency will have less liability to fund.
But more withdrawals also mean the retirement program will have to dispense more money than it does normally. Since no government contributions are going into the Fund, the short-term impact can be damaging to the pension plan.
As of March 2008, the Fund had $440 million in assets. This year, the Fund is expected to liquidate $45 million in assets to pay benefits and administrative costs. If drawdowns continue at this rate and the government continues to fail to remit any money to the Fund, the pension program will be bankrupt in fewer than 10 years.
