Fund’s accrued liability goes down to $879M

The Retirement Fund’s accrued actuarial liability decreased from $1 billion in October 2005 to $879 million in October 2007, and Gov. Benigno R. Fitial credits this to the reforms the administration implemented to shore up the Fund’s finances.

Gov. Benigno R. Fitial, in a statement issued yesterday after reviewing a PowerPoint report from the Fund, expressed satisfaction with the economic relief.

“The reforms we implemented have made a positive impact in saving the CNMI government’s defined benefit plan,” said Fitial, who reviewed the report while in Washington, D.C. for President Barack Obama’s inauguration.

The governor noted that in the year 2000, the accrued actuarial liability was $809 million and it grew to $1 billion by 2005, growing at a rate of some $40 million per year before the reforms were implemented in 2006 and 2007.

”Essentially, our hard work in 2006 and 2007 reduced the financial bleeding and curtailed the growth of the accrued actuarial liability,” said Fitial.

He credited Public Law 15-70 and the conversion from the defined benefit plan to the defined contribution plan, which was supported by both the administration and the Legislature.

“Clearly, P.L. 15-70, the Defined Benefit Plan Reform Act of 2007, and the new defined contribution plan went a long way to reduce fund liabilities,” Fitial said in the statement.

Fitial was also pleased contributions required by the government were reduced from $61 million in 2005 to $35 million. Three reasons were cited for the reduction: Benefit reductions due to P.L. 15-70, strong investment return in FY 07, and members transferring to the DC plan.

Although the Fund suffered severe losses in 2008, Fitial noted a few mitigating factors: A $128 million reduction in accrued actuarial liability since 2005; a 45-percent funding of unfunded liabilities; and a closed DB plan that prevents ever increasing pension liabilities.

Tony Muna, Fitial’s former Special Assistant for Management and Budget, said, “it would be advisable for the Fund to revisit investment policy given the negative growth trend or flat-lining for DB plan liabilities.”

“At some point, this will be about liquidating DB plan assets versus growing assets,” he added.

The government’s failure to remit all required contributions might have been a plus considering the severe market downturn in 2008, according to Muna.

“Considering that the Fund is claiming $165 million in government contribution receivables and had those contributions been made, Fund losses could have been 28 percent of $700 million, or some $210 million, instead of $114 million,” said Muna, now CUC’s executive director.

Meanwhile, the Fund’s actuary has proposed a series of specific legislative reforms to further protect the pension program.

“The Fitial administration understands that the Retirement Fund board and staff are considering some and have endorsed others. The administration is ready to work with the Fund and Legislature in enacting additional reforms,” the statement said.

The governor, who has endorsed some reforms on the Fund’s or actuary’s wish list, plans to meet with the Fund and the Legislature after he returns from Washington, D.C. later this month. Fitial said he would be interested in seeing the proposed reform legislation and the Fund’s analysis of each reform’s financial impact.

Among the reforms endorsed by the NMIRF chairman, Fitial supports an initiative to issue a pension obligation bond to help stabilize the Fund’s financial health. In October 2008, Sen. Maria T. Pangelinan introduced such an initiative in SLI 16-10.

“I am willing to support more legislative recommendations to protect the solvency of the Fund,” Fitial said.