Fund’s unfunded liability at $584M

Latest data shows that the NMI Retirement Fund’s unfunded liability has ballooned to $584 million, mainly because of the local government’s unpaid contributions to the pension system.

This means for every dollar that the NMI Retirement Fund owes beneficiaries, only 34 cents is funded and 66 cents is unfunded.

The Fitial administration, however, is not the only one to blame for the financial crisis of the pension system, according to Fund board of trustees chair Juan T. Guerrero, but also the Legislature, which has been micro-managing the Fund.

The Commonwealth Association of Retired Persons held a meeting last night to come up with ideas to help save the retirement system.

As of March 31, the CNMI government owes the Retirement Fund over $196 million in employer contribution.

However, the FY 2009 interest penalty of $953,478.64 has not been booked since it is not yet the end of the fiscal year.

Guerrero and Fund administrator Mark Aguon cited as an example the employer contribution originally set at 36.7 percent recommended by an actuary, but the Legislature passed a bill that was signed into law reducing it to 18 percent in January 2008.

A year later, the fiscal year 2009 budget pegged the government employer contribution at only 11 percent.

“The Legislature is also to blame. The government contribution was reduced from 36.7 percent to 18 percent to 11 percent yet they don’t compel the agencies to pay,” Guerrero said during yesterday’s board meeting on Capital Hill.

Guerrero said they look forward to the April 20 hearing on the Retirement Fund’s 2006 lawsuit against Gov. Benigno R. Fitial, Department of Finance, and Finance Secretary Eloy Inos over the government’s failure to remit required payments.

“The Fund sends out 30 letters a month to departments and agencies reminding them they’re in arrears,” said Guerrero.

David S. Demapan, comptroller of the NMI Retirement Fund, said during the first six months of FY 2009, the drawdown from investments already reached $25.3 million.

This is already over 50 percent of the $8.7 million in drawdown during the same period last fiscal year.

The fiscal-year-to-date cash flows show an increase of over $1.9 million, which is some $37.4 million in cash inflow minus over $35.5 million in cash outflows.

“If we relate the cash flows to the drawdown from the investment, the investment contributes 68 cents to the dollar. On the flip side, the drawdown from the investment finances the operation by 72 cents to the dollar,” said Demapan in his report to the six-member board of trustees.

In March alone, the Fund’s withdrew $4.431 million from its investments to finance pension costs, refunds, conversion from the defined benefit plan to the defined contribution plan, staff payroll, and vendors.

In FY 2009, the board has authorized $45 million for drawdown from investments.

“Due to the unpaid employer contributions, refunds, and rate hike in health insurance, the drawdown authorization of $45 million may reach $47.7 million before the end of the fiscal year,” said Demapan.

During the first six months of FY 2009, the Fund reported revenue of $11.2 million, which is 28 percent lower than the projected revenue of $15.6 million.

“The unpaid employer contributions from the CNMI government, as well as autonomous agencies are the main contributors to the 28 percent decline,” said Demapan.

The Fund projected earning of $2.6 million in March but ended up with only $1.7 million in actual revenue.

The Fund’s investment portfolio is at over $276 million as of February because the March investment statements have yet to be received from money managers.

The Retirement Fund warns that 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.

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.

Government contributions are intended to fund current operations, pension and other benefit costs, as well as to service the long-term actuarially accrued liability.