‘Writeoff doesn’t mean no payment’

The Fitial administration said yesterday that retirees will continue to receive their pension and current members are assured of their benefits even with the administration’s proposed writeoff of $124 million unfunded liability.

Tony Muna , the governor’s special assistant for budget and management, said during a news briefing yesterday that existing members won’t be stripped of their retirement benefits as some feared.

“It won’t affect the current retirees. It won’t affect the vested employees. It won’t take a penny away from them,” said Muna.

He said the proposal, the Defined Benefit Plan Rescue and Reform Act of 2006, merely aims “to put a brake on something that is out of control.”

He said that what the bill aims to stop is the continued accumulation of unfunded liabilities, which, he said, has reached $552 million as of September 2004.

He said the $124 million is part of $552 million, and writing off the former would not change the total unfunded liability.

Muna said that the proposed writeoff is merely “administrative.” In actuality, he said the government remains faced with the same liability. However, the writeoff (of $124 million) at this time would ease the burden of having to pay the amount right away.

“There’s only one unfunded liability. It’s the $552 million. When we say writeoff $124 million, it will not make $552 million less. The government will pay that amount. But right now, we cannot afford it,” he said.

In general, unfunded liabilities refer to a future claim of current and retired government workers, forecasted shortfall between existing retirement assets, future earnings and contributions against future benefits that must be paid.

The $124 million represents the government obligations that have not been paid since 1994 to present. It could be referred to as the current unfunded liability.

The total amount of $552 million includes future liabilities to the Fund for some 8,000 members.

Muna said the bill provides for an extension of time to repay the entire liability.

Already messed up

For his part, Gov. Benigno R. Fitial said that his administration does not certainly intend to mess up the retirement system.

To begin with, “the retirement system has been messed up way before we came.”

“We plan not to mess it up but to fix it,” said the governor.

He cited that since 1994, the government has failed to address the problem of the unfunded liability.

“This is not a new problem. It’s been there since 1994 but nobody seems to be doing anything to fix the problem,” said Fitial, who is the sixth elected governor of the CNMI.

The governor said payments to retirees will continue using the income from Fund investments.

Long-term solution

The administration said the bill aims to retire the total unfunded liability by:

• writing off the current liability ($124 million);
• suspending the employer’s contribution temporarily; and
• converting the defined benefit plan to defined contribution plan.

This shift in plan, Muna said, would decrease the number of vested members from 8,000 to a manageable size of about 4,000. The ultimate goal is to zero this number.

“The way to reduce your liability is to reduce your [defined benefit members]. We can do that by putting people under a defined contribution plan,” he said.

The administration submitted a separate bill to create a defined contribution program. It defines the program “as a plan in which savings are accumulated in an individual retirement account for the exclusive benefit of the member or beneficiaries.”

It also calls for a minimal employer contribution matching of 4 percent.

Currently, the government shoulders 24 percent of the employees’ retirement contribution.