Guerrero: Pension fund may be wiped out in 3 to 5 years
The CNMI pension program may be wiped out in five years or as early as three years due to the government’s unpaid obligation and the impact of the global economic crisis on the NMI Retirement Fund’s investment portfolio, Retirement Fund board chair Juan T. Guerrero said Monday night.
“The $209 million that the government owes the Fund grows every month. …If that debt and the stock market crisis continue, the Fund will be wiped out in five years. The worst scenario is three years,” he said.
Guerrero, who is running for governor, said the Fund needs roughly $50 million a year to continue giving pension benefits to some 2,800 retirees.
The checks are supposed to be funded by the regular monthly collections from the central government and the autonomous agencies.
For FYs 2006 and 2007, a law legalized the suspension of payments to the Fund. Although the suspension was lifted in FY 2008, the government is still delinquent in its payments.
There are two main sources of funds for any defined benefit plan—investment returns and government contributions.
Investment returns are typically left alone to grow and for the future use of the retirees, and should not be relied upon for current expenditures.
Government contributions are to fund current operations, pension and other benefit costs, as well as to service the long-term actuarially accrued liability.
The chairman said as long as the government continues to “underfund” the pension program, it forces the Fund to rely solely on the investments to pay for the benefits, as well as to service long-term liabilities.
“The main threat to the Fund’s investments now is the constant drawdowns to fund pension cost,” he said.
In the last 18 months, the Fund has withdrawn an average of $5 million per month or a total of over $110 million.
“If the government continues to ignore its responsibility to ensure the Fund is adequately funded, and the only revenue source becomes the investment assets, we now become a depleting fund and must shift to projecting when the assets are reduced to zero, rather than when the Fund becomes fully funded,” the chairman said.
Offset
Gov. Benigno R. Fitial earlier said Public Law 15-70 and the conversion from the defined benefit plan to the defined contribution plan reduced the Retirement Fund’s accrued actuarial liability from $1 billion in October 2005 to $879 million in October 2007 a
The Fund’s assets at the time were the highest in its history.
But Guerrero said the drop in the accrued actuarial liability was offset by the losses sustained by the Fund in the stock market.
This also offset the government’s non-payment of contribution to the Fund, which has an unfunded liability of about $500 million.
“The effects of P.L. 15-70 did reduce the actuarial accrued liability, but the gains were offset by the losses sustained in the stock market [in 2008],” said Guerrero.
Since the peak at the end of FY 2007, the Fund has withdrawn an additional $45 million from its investments to offset the government shortfall, coupled with a reduction in the Fund’s assets by over 23 percent due to the global market meltdown.
Measures and bills have been introduced in the Legislature to help the Fund. Among those is a proposal to issue pension obligation bonds to pay the government’s obligations to the Fund.
In addition, the Fund is in the final stages of drafting a crisis management plan. One of its goals is to draft an omnibus bill, which the Fund will bring to the Legislature and the Fitial administration.