Investment account made a $14.5M gain
In order for the NMI Settlement Fund to be sustainable by 2024, the CNMI government would need to make a lump sum payment of $477.2 million to the Fund today. Alternatively, additional funding could also be made to the Settlement Fund over time.
These were the options outlined by NMI Settlement Fund’s trustee Joyce C. H. Tang in her report filed Friday with the U.S. District Court for the NMI.
Tang’s report covered the combined period from the fourth quarter fiscal year 2017 through third quarter fiscal year 2019.
Tang also reported that, at the end of fiscal year 2018, the balance in the Settlement Fund’s investment account was $82.9 million, while the balance as of July 31, 2019, was at $97.4 million, showing a gain of $14.5 million.
For the first time, the Settlement Fund investment trend is now increasing, said Tang, indicating that the fiscal year 2017’s end balance of the investment account was $73 million, which was at $83 million in fiscal year 2018 and $97 million in fiscal year 2019.
Tang said that she and the Settlement Fund’s investment consultant, Wilshire Investments principal Maggie Ralbovsky, met with NMI government leaders to discuss ways to achieve full financial sustainability by fiscal year 2024.
Assuming expected returns on investments of 4% per year, the present value of the future benefit payment obligations of the Settlement Fund equals $575 million, she said.
The trustee said after deducting the $97.8 million in the investment account, a lump sum payment of $477.2 million to the Settlement Fund today would enable the Fund to be fully funded and financially sustainable.
Tang said assuming additional contributions (above the required minimum contributions) would be made consistently through the next five years, to achieve sustainability by the end of fiscal year 2024, the Settlement Fund requires $325 million (includes the $97.8 million in the Fund’s investment accounts) by end of fiscal year 2024, “after which no further expected contributions are required.”
She said if the government were to pay an additional $45 million per year in addition to the Minimum Annual Payment for five years, the Settlement Fund would be able to adopt a more aggressive asset allocation to achieve a 5% expected return, and is expected then to be fully funded and sustainable.
Tang suggested three ways that the government can raise the additional $45 million per year: reducing the rebate of taxes by 20% or more, floating a tax-free general obligation bond (not pension obligation bond), or raising money through the sale or lease of government land.
Tang attributed the Settlement Fund’s drastic improvement of its course in large part to the administration of Gov. Ralph DLG Torres and other CNMI leaders’ commitment to pay $1 million each week toward the reduction of the MAP and the payment of the Alternative Payment of a Greater Amount.
That commitment, she said, gave the Settlement Fund a chance to invest its money.
The settlement agreement in Betty Johnson’s class action requires the government to make AGPA payments equal to the difference of 17% of the government’s total annual revenue, after deducting the amount of MAP paid.
To date, Tang said, the Settlement Fund has achieved a return of 5.8% for this fiscal year.
She said as of July 31, 2019, the balance in the Settlement Fund’s investment account is $97.4 million—representing 92.87% of the initial Fund corpus at Dec. 31, 2013.
Corpus refers to the capital of the organization and in this case, the Settlement Fund.
When the Settlement Fund was formed in October 2013, $128,417 was transferred to the Settlement Fund’s investment account.
Tang said after paying Public Law 17-82 payments in November 2013, totaling $40.6 million, the remaining balance in the account on Dec. 31, 2013, was $104.9 million.
Tang said the Settlement Fund’s better than expected investment return was attributed in part to falling interest rates since the beginning of 2019, and the financial markets’ responding positively to the perceived new round of stimulus coming from lower interest rates.
The trustee noted that the court and retirees should know that the CNMI government has been diligent in honoring its agreement to pay MAP in allotments of $1 million per week.
Tang said Torres and Lt. Gov. Arnold I. Palacios, together with members of the Legislature, have persevered through the natural disaster of Super Typhoon Yutu and ongoing financial difficulties, which have left the government with chronic cash shortages.
Tang said the CNMI leaders worked with her to give the Settlement Fund the priority required to avoid significant drawdowns on investments.
She said it is the leaders’ commitment to the government’s obligations, which has reversed the negative trajectory of the investment trend and allowed the Fund to accumulate reserves to cover benefit payments for a two-year period.
“The trustee appreciates the dedication and commitment shown by the leadership of the CNMI government,” Tang added.