Fund’s assets being steadily eroded—Knieriem

If the NMI Retirement Fund had been funded properly, it would have been worth $765 million at the end of 2007, based only on the return of assets. Instead, it was worth only $474 million.

Yesterday the Fund was worth just $330 million, according to Kenan Knieriem, first vice president and account executive in charge of Merrill Lynch’s Institutional Advisory Division.

In a presentation to members of the Saipan Chamber of Commerce at their monthly meeting in the Azucena Room of Fiesta Resort and Spa Saipan, Knieriem said the CNMI government underfunded the Retirement Fund by $33 million in fiscal year 2008.

“They did make some payments, they made about a little over $30 million in payments, but they’re still underfunding it by $33 million, which means the benefits have to be paid for out of the Fund,” he said.

With the current economic situation, there is a possibility that the stock market will not bail out the Fund next year, he said.

Knieriem said the current benefits might be too high.

“There might be some ground to give, the benefits extended or reduced,” he said. “So maybe the benefits have to be changed. If they don’t fund it and change the benefits, then it’s going to run out of money. And then you know what happens? Everyone’s taxes go up to pay the current benefits.“

He said the CNMI is potentially looking at a system similar to Social Security.

“In the Social Security system there’s no trust fund, it all comes out of general fund,” he said. “It’s a pay-go system…the money will come directly out of your paycheck to the government because there’s no fund.”

Knieriem said he gave the same presentation to members of the CNMI Legislature about a month ago. Approximately half the members were in attendance.

When asked how lawmakers responded to the presentation, Knieriem said there was little reaction.

“I mean I stood there for two hours, and they didn’t have any real reactions,” he said.

As investment custodian, Merrill Lynch supervises the Retirement Fund’s nine money managers

The Fund filed a lawsuit against the government, Gov. Benigno Fitial, the Finance Department and Finance Secretary Eloy Inos in 2006 over the government’s colntinued failure to remit the required employer contribution payments, now reaching over $119.6 million.