Fund proposes 4 scenarios in cutting members’ benefits

The NMI Retirement Fund wants the court to consider the strategies presented by its actuarial consultant, Buck Consultants, on how to reduce the benefits paid to members in order to save the pension system.

“The proposed Buck scenarios involve a reduction in Fund payments to beneficiaries, not a reduction in benefits owed by the government. The government will still be liable and responsible for the difference between what the Fund paid and what the government promised and, if the government chooses to do so, could pay the difference out of its operating budget, as it will have to do if and when the Fund runs out of assets to pay benefits,” Fund legal counsels Viola Alepuyo and Braddock J. Huesman stated in a 22-page filing made Friday.

They pointed out that reducing Fund payments would have the primary effect of lengthening the life of the program. They favor an option that will cut benefit amounts across-the-board.

Buck Consultants had suggested four strategies that the Fund could use to reduce the program’s liabilities:

1. Eliminate the cost-of-living-allowance, COLA, and all future disability benefits;
2. A 10-percent cut in benefits on top of eliminating COLA and disability benefits;
3. A 25-percent cut in benefits in addition to stopping COLA and disability benefits; and
4. A 50-percent cut in benefits plus elimination of COLA and disability benefits.

Under these differing scenarios, eliminating just the COLA and disability benefits will extend the program’s life by just a year, the Fund said.

If the second scenario is followed, the pension program’s lifespan is projected to last until 2017. If the court adopts the third option, the Fund said that the program may last up to 2020.

The Fund said the fourth option will enable the Fund to become “fully funded.”

“This would have the effect of making the Fund actuarially sound or fully funded for the benefits it was currently responsible for. This means that all beneficiaries would receive at least 50 percent of what they were promised by the government,” explained the Fund counsels.

Additionally, they said, current and recently retired employee contributions would be fully protected under the fourth option.

“It is important to reiterate, however, that the total amount the government owes the retirees would not change. In other words, accrued benefits would not be adjusted. The amount the Fund must distribute, however, would be. Thus, current and future beneficiaries would receive less money and benefits directly from the Fund, but they would not be owed less by the government,” they added.

Associate Judge Kenneth Govendo is handling this case.

The Fund’s investment consultant, Wilshire Associates, earlier reported that the program’s lifespan is expected to last only three years due to its depleted investment portfolio, valued at $271.2 million as of Aug. 19.

To prolong the Fund’s life, Wilshire said the government would need to contribute $58 million yearly for 10 years or restructure the program’s liabilities by temporary reducing the benefits paid to members.