Unpopular decisions in the offing

Unpopular decisions, including a possible tax increase, may have to be made if the Retirement Fund verges on bankruptcy, according to a senior lawmaker.

Senate President Pete P. Reyes said the Legislature would have to find a way to keep the Fund floating, responding to a Saipan Tribune query whether the Legislature has a contingency plan in place should the Retirement Fund go down.

“If there’s a need to raise taxes then at that very time when the situation is necessary to be addressed, the Legislature may make some unpopular decisions,” the senator said.

He, however, underscored the need to stop the “in-house fighting.”

“This is counterproductive for the administrator of the Retirement Fund to continue attacking the government. Instead of working with us to try and address this problem, we don’t need this attack. We need to work together and find a solution to the problem and one of the solutions is floating a revenue bond,” Reyes said.

The Senate president said a Fund bankruptcy is possible, but that it is not just because of the CNMI government’s inability to pay its mandated employer contributions.

“It is also because of the economic situation nationwide and internationally. The Fund just lost several millions of dollars from its investment. And those were contributing factors. It’s not just the inability of the government to pay,” he pointed out.

What if the government pays off all of its unfunded liability and the market crash happens, then the Fund would still lose everything, he added.

“Those possibilities exist as we can already see. Where would they [Fund] go?” Reyes asked.

Right now, the senator said, he supports a bill to float a revenue bond that would address the need for the government to fully pay off its liabilities to the Fund.

“Those are ideas that we can do and we can dedicate a source funding to repay the bond. So floating a revenue bond is a good idea,” he said.

Reyes said the Legislature needs to make sure that the Fund does not go bankrupt.

The Fund’s assets have been reported on a downslide since 2006. In that year, the central government stopped contributing to the pension program, forcing the Fund to liquidate assets to make pension payments.

In fiscal year 2008, the Fund withdrew $35 million, with approximately half of that amount needed to pay retirees.

In September 2008, a stock market crash reportedly wiped out $30 million of the Fund’s investments. But after a week in the same month, the Fund’s losses went down to $9 million as the market recovered.