Fund: Call it repayment, not writeoff

If the Fitial administration’s writeoff bill would not result in the nonpayment of retirement benefits, then it should propose a repayment scheme, not debt forgiveness, said an official of the NMI Retirement Fund.

“If what they are saying now is true, then call it a repayment plan, not a writeoff. What they are proposing in the bill is a writeoff. That’s different,” said Fund board chair Joseph Reyes in an interview.

The administration said on Friday that its proposals to write off the $124 million unfunded liability, suspend employer contribution, and to require the Fund to loan $40 million to the Commonwealth Utilities Corp. would not result in the nonpayment of pension and other retirement benefits.

The Fund, and some members of the House minority bloc, have warned that the proposal would paralyze the Fund, resulting in its failure to pay off retirement benefits to its members.

“If the government stops paying its employer contribution, where would we get money to pay the pension, refund, and our future obligations to retirees?” asked Reyes.

The administration said Friday that these obligations would still be met using the Fund’s income from investment.

“They are authorized to use the income from the investments,” said the administration.

But Reyes said that if this happens, the entire investment would be exhausted in eight to nine years.

The Fund’s assets totaled some $500 million, including $446 million in investment money, as of March 31 this year. The Fund said its total obligations reach $5 million a month.

“It’s going to be wiped out in less a decade,” said Reyes.

The House minority bloc also criticized the administration proposal, calling it a “raid” rather than a rescue of the retirement fund.

The minority group said the bill, called “The Defined Benefit Plan Rescue and Reform Act of 2006,” is unconstitutional for three reasons: it violates the contractual relationship between the members and the government; it impairs the Fund’s capacity to pay benefits; and it violates the Fund board’s fiduciary duty over investment options.

‘WHAT’S YOUR SOLUTION’

Tony Muña, the governor’s special assistant for budget and management, said the bill, along with another measure that aims to create a defined contribution plan, are long-term solutions.

“These critics, I don’t understand why they find it confusing. It’s simple math. If we continue this course, it will bankrupt the Fund. We’re trying to put a brake on something that’s out of control. That’s the nuts and bolts of it,” Muna said, referring to the government’s generous retirement system, which has created an unfunded liability of $552 million as of October 2004.

He said the bill aims to retire this 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 way, he said, the liability would stop growing as all new members and eligible employees would be under a defined contribution plan. The current members total some 8,000.

With the plan conversion, he said about 4,000 vested employees would remain under the defined benefit plan. Vested employees are those who have been in the system for 10 years or more.

“My challenge to critics is: What’s your solution?” Muna asked.

He said the government could not afford the Retirement Fund’s “solutions”: to float a bond to pay off the unfunded liability, to pay the obligations now, and a possible tax increase.

“This is the Fund’s solution but it’s not prudent to go into a new debt to pay the existing debt. It’s like getting a MasterCard to pay your Visa card,” he said.

He said the government could neither pay the debt right away, nor raise taxes to solve the problem.

“The government cannot afford to pay the obligations. Where would it get the money? And here’s my take on increasing taxes. Do you want the government to increase the taxes of everybody to take care of a few? You want me to increase the taxes of 70,000 people so I could pay 8,000?” he asked.

The NMI Fund incurred the $124 million liability due to the central government’s failure to pay its retirement obligations—not enough remittance for employer contribution, 30 percent early retirement bonus, prior service credit, and other legislated benefits for retirement members.

LEGISLATURE ‘BASTARDIZED’ THE SYSTEM

Gov. Benigno R. Fitial, a former lawmaker, blamed the Retirement Fund mess on the Legislature’ past actions of passing generous benefit programs without funding.

“The Legislature has been bastardizing the system,” he said.

He said the retirement system has been messed up since 1994.