Fund portfolio drops to $271.3M

From over $305 million last month, the NMI Retirement Fund’s investment portfolio plummeted to just $271 million in mid-August, the drop being blamed on the recent volatility in the stock market and the continued withdrawals being made to pay for members’ pension benefits.

Fund administrator Richard Villagomez disclosed yesterday that the CNMI pension program’s asset value dropped by $34 million to $271,321,977 as of Aug. 19 this year.

By and large, the continuous withdrawals from the portfolio in order to pay for the pensions of retirees are to blame for the steep plunge, Villagomez said. Called drawdown, these withdrawals average $2.3 million monthly.

In the last 10 years, the highest the Fund’s investment had been was in 2007, when the total portfolio was valued at $510.1 million.

With the central government and some autonomous agencies failing to pay their employer’s share, the Fund has been forced to drawdown from its invested assets to meet its obligation to members. These withdrawals have depleted the portfolio to a point where its lifespan is projected to last just three years.

The recent stock market bloodbath that resulted from Standard & Poor’s downgrading of the United States’ credit rating also had an impact on the Fund’s asset basket. Villagomez said the agency had a negative 10.63 percent return on its investments from July 31 to Aug. 19 this year. For the fiscal year to date return—from Oct. 1, 2010 to Aug. 19, 2011—the return on investment is at a paltry +0.04 percent. In 2007, ROI was at 15.8 percent.

Villagomez pointed out that the Fund’s under-funded situation has been an issue since its inception and continues to be an issue despite the agency’s efforts to compel the CNMI government to provide appropriate funding.

“Our elected officials are fully aware of the financial status of the Fund because we present it to them every chance we get in an effort to get sufficient money to support the system,” he told Saipan Tribune.

The most recent instance was a joint meeting a few days ago where the Fund and its consultant, Wilshire Associates, advised lawmakers that the Fund will run out of money in three years unless its liabilities are restructured.

“The Fund has been shortchanged for too many years, leaving no other options,” he said.

Early this year, the Fund’s actuary, Buck Consultants, also gave a presentation to the Legislature on the fiscal year 2009 actuarial valuation report and the Fund’s short outlook if funding issues are not addressed.

Villagomez said that members of the Fund should demand that retirement contributions be prioritized in the budgeting process this year and every year forward to ensure the pension program’s perpetuity. Under the proposed fiscal year 2012 budget, only $10 million is being proposed for the government’s employer share.

To prolong the Fund’s life, it is estimated that the central government needs to make a yearly contribution of at least $58 million every year for the next 10 years.

With respect to the restructuring of liabilities, Villagomez said that the Fund is governed by law and plans to comply with the Retirement Fund Act or any order of the court with respect to payment of benefits to members and their survivors.

“However, it is the Fund’s position that pension is an obligation of the employer, the CNMI government and each autonomous agency with respect to its employees and that once the funds set aside in trust for payment of such pensions are exhausted, the CNMI government will be obligated to pay pension benefits from the Commonwealth treasury,” he added.