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Govt fined for late Fund payment
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Posted on Nov 01 2006
The NMI Retirement Fund is charging the central government 25 percent penalty rate each time it fails to pay its employer contribution.
“They are being charged 25 percent,” said Fund administrator Mark Aguon in an interview yesterday.
The Fund imposed a penalty rate—minimum of 10 percent to a maximum of 25 percent a month—for any employer who fails to remit the required contributions.
“But how can you even talk about the penalty when there’s no payment at all. …But we’re putting that in the books,” he added.
The central government has not been paying its employer contribution to the defined benefit plan since April this year. In June, it enacted a law officially suspending its contribution until the end of fiscal year 2007.
Aguon said that the government, with the exception of the Public School System, is required to pay 36 percent in employer contributions. PSS pays using the old rate of 24 percent following the enactment of a law exempting it from the increased rate.
The Fund releases nearly $5 million a month for pension obligations.
A few months back, the Fund’s actuarial consultant, Buck Consultant, warned that the law suspending the central government’s retirement payment would increase the defined benefit plan’s unfunded liability by $150 million.
It said that any deferred payment of the required contributions to a defined benefit plan “never improves the funded position of the plan.”
“We have estimated that, as a result of the delayed contributions to the plan, the unfunded liability of the defined benefit plan will increase by an estimated $150 million,” said Buck Consultants director L. Daniel McLellan in a report.
As of April this year, the government’s outstanding debt with the Fund in employer contributions totaled some $85 million.
Overall, authorities cited a $552-million unfunded liability with the Fund.
McLellan said the suspension law, Public Law 15-15, does not only increase the overall unfunded liability of the plan, but it also requires that it liquidate current assets to cover ongoing cash flow requirements.
A financial audit of the Fund for fiscal year 2005 showed that the Fund spent some $8 million of its investment funds to offset shortfalls.
