Fund asks Fitial to disapprove derivative lawsuit bill

Two days after the House followed the Senate’s passage of a bill allowing retirees or beneficiaries of trusts to sue if the board refuses to do so, the NMI Retirement Fund asked Gov. Benigno R. Fitial to disapprove the measure which it describes as “offensive” and “damaging” to the pension system.

Senate Bill 17-43’s latest version was a product of a six-member conference committee formed when the Senate and House initially couldn’t come to an agreement on the measure.

Press secretary Angel Demapan said yesterday that the Fitial administration is still reviewing the bill.

Richard Villagomez, administrator of the Retirement Fund, said the House passed the bill without allowing the Fund to testify on the measure. He said the Senate also passed the bill earlier without considering the Fund’s live testimony explaining the damaging effects of the bill.

“On behalf of all Fund members, we beg you to disapprove this bill,” Villagomez told the governor.

In his five-page letter, Villagomez reiterated the damages that he said SB 17-43 will have on the Retirement Fund, including increased cost of doing business because of added litigation and damaging the reputation of the CNMI which will be perceived as being a hostile business environment.
He said investment consultant and money managers will likely cancel their contracts with the Fund because of additional risk of potentially being sued by people not parties to the contract.

“As one of our money managers explained to us after reading about SB 17-43 in the news, ‘you are changing the rules in the middle of the game’,” Villagomez said.

He also cited financial damage in the form of opportunity cost as a result of investment consultant and money managers canceling contracts.

Villagomez said if no firm is willing to contract with the Fund to manage its assets, the Fund would be forced to liquidate its portfolio and move those funds to savings accounts or certificates of deposits.

“The estimated opportunity cost of being out of the markets for an extended period is $9 million per year,” Villagomez told the governor.

He said businesses providing services, such as the Group Health or life insurance providers, will more than likely reconsider contracting with the Fund and if they do, they may very well increase their costs to the Fund.

In his letter to the governor, Villagomez cited examples of possible lawsuits that SB 17-43 would allow.

For example, a member could sue his neighbor because the neighbor receives a disability annuity but is frequently seen mowing his or her yard, and therefore the member does not believe the neighbor is disabled and thus is harming the Fund by receiving an “undeserved” benefit.

He also said a spouse of a Fund member could sue the contractor that painted the Fund building, alleging that too much was paid or the color was not right.

“This bill, if enacted, will make it very difficult for the Fund to find any party that would be willing to enter into a contract, because the party would be responsible not only for satisfying the board of trustees, but all 20,000 potential intended beneficiaries of the Fund, in all aspects of performance of its contract,” the Fund administrator said.

He also cited uneven retroactive application, and three specific offensive provisions including Sections 102, 105 and 106.

Villagomez said special interest legislation of this sort should not be entertained.

“The Fund gave in and heeded the Legislature’s request to sue Merrill Lynch and will vigorously pursue a recovery. What other reason could there be for this legislation to proceed?” he added.

Floor leader George Camacho (Ind-Saipan) said during Tuesday’s House session that considering the bill should be considered moot because the Fund has already sued its former investment consultant, Merrill Lynch.

Some retirees filed a lawsuit in October 2009 against Merrill Lynch, along with the Fund trustees, for providing “bad advice” to the trustees, resulting in the collapse of its stock investments.

They have since asked the Fund to join the lawsuit against Merrill Lynch, to no avail until June 2011 when the Fund filed a counter-complaint against its former investment consultant.