Unless the CNMI government increases its contributions, the NMI Settlement Fund is expected to become a pay-as-you-go entity by the year 2019, according to Fund trustee Joyce C.H. Tang, reiterating her statements since last year
Tang also maintains the view that the casino licensing fee of $15 million per year paid by Best Sunshine International, Ltd. would better be used to pay the 75 percent pension or invested by the Settlement Fund so as to increase the investment horizon, instead of being used to pay off the 25-percent that was cut from the pensions of government retirees.
By 2019, retirement income of all the beneficiaries will be entirely dependent upon the government’s contributions.
Tang also disclosed that in order to meet its financial obligations, the Settlement Fund withdraw $22.81 million from its investments in fiscal year 2015. Because the funding requirements of the Settlement Fund exceeded the income of the Fund, the Fund must draw on its investments to cover the outflows, she said.
The Fund contributions, casino licensing fee, and drawdown from investments are among the issues that Tang discussed in her report for combined second, third and fourth quarters of fiscal year 2015 that was filed in federal court last week.
U.S. District Court for the NMI designated judge Frances Tydingco-Gatewood will take up the report on Friday.
In her report, Tang disclosed that the beginning value of investments for the quarter ending Sept. 30, 2015, was $80.18 million, and the ending investment value was $73.7 million.
Tang said the government paid the minimum annual payment of $27 million in fiscal 2015. That amount represents 82.63 percent of the income the Settlement Fund received in 2015. The remaining 17.37 percent payments came primarily from employer and employee contributions and investment income.
For fiscal year 2016—Oct. 1, 2015, to Sept. 30, 2016—the minimum annual payment increased to $30 million, Tang said. The government has until the end of December 2016 to pay $4.5 million, the first quarter payment due for fiscal 2016.
On top of the $27 million minimum annual payment, Tang said the government has been paying the 25 percent additional pension payments to the retirees. Since most retirees live on a fixed income, this payment represents a significant amount for most retirees, she said.
Tang believes that a more prudent use of the 25 percent payments is to give the money to the Settlement Fund to invest.
“This would extend the investment horizon and provide more security and long-term benefit to retirees,” she said.
The Settlement Fund has been assisting the government with the processing of the 25 percent payments on a bi-weekly basis.
Tang has expressed her concerns to Gov. Eloy S. Inos that once the casino license fees are exhausted, the government will have to find another funding source to fund the 25 percent payments.
Tang said Inos was amenable to an arrangement whereby the funds are deposited into an escrow account owned by the government to process the 25 percent payments.
Under this arrangement, she said, the government will transfer funds each pay period for the 25 percent payments in the escrow account, and the Settlement Fund role will be limited to providing confidential retirees’ information and calculation of the payments to the bank to process the payments to retirees.
She said all expenses for the escrow account, bank fees, and maintenance fees will be borne by the government.
This arrangement, Tang said, would stop if the government defaults on any payment obligation.
All autonomous agencies are current on employer contributions through Sept. 5, 2015, Tang said, except for the Northern Marianas College, which has objected to paying the 30 percent rate. NMC’s position is that it is required to pay the employer contribution rate at 20 percent only.
Tang said NMC now owes the Settlement Fund a total of $99,415.46, including $19,883.09 in penalty.
The government, meanwhile, has been prompt in paying for the reimbursement of trustee’s fees, Tang said. The government has agreed to reimburse the Settlement Fund for the trustee’s fees in the amount of $694,998.30, to be paid in 24 installments of $28,958.26 a month. Tang said there is a balance of $202,707.88 remaining as of November 2015.