‘Pointless issues further shorten Fund’s lifespan’

Issues surrounding the newly enacted Derivative Beneficiaries Act are further shortening the predicted three-year lifespan of the NMI Retirement Fund, according to the beleaguered pension program’s investment consultant.

Wilshire Associates principal Maggie Ralbovsky described the impact of Public Law 17-51 and other “attention diverters” as factors in the expected increase in the Fund’s operating costs.

“I really hope the people of the CNMI can understand that every day the investment program is crippled is a day wasted out of the precious three years and may eventually shorten the expected life of the Fund,” she told Saipan Tribune in an email yesterday.

Based on the current assets of the program, it is projected that the pension plan has only a three-year lifespan or until 2015.

As of Aug. 16, the Fund had $271.2 million in total investments, of which $100 million has been set aside by a court order as a reserve fund for active members who are still contributing to the plan and for those who retired but have yet to collect their pensions. Although the $100 million will not be placed in a separate account, the amount is not authorized for uses for any other purposes.

That leaves the Fund with only $171 million available for investments and payments for pension members.

Ralbovsky disclosed that the Fund’s annual payout to its members reaches $70 million per year, with $10 million of that sourced from the government’s contribution to the Fund and $60 million from the Fund’s investment.

“Payments are due to accelerate to $70 million per year, with $10 million per year in government contribution and some investment returns to cover part of payments, the drawdown is expected at $60 million per year,” she explained.

This means that the projected drawdown in three years will amount to $180 million—a figure greater than the available assets of $171 million.

In order for the pension plan to keep afloat in the next 10 years, Ralbovsky said the government needs to put in $58 million in employer contribution each year in 10 years. Restructuring or cutting the pension benefits of members by 50 percent and increasing the government remittance each year are other immediate ways to extend the Fund’s projected three-year lifespan.

Factors in calculation

When asked about the factors used when calculating the projected amounts, Ralbovsky said that Wilshire considered the projected investment return, which would have been higher had the strategy it recommended had been enforced. However, with the resignation of several money managers, she said that strategy cannot be implemented.

Wilshire, which also terminated its contract with the Fund, will assist the Fund until Oct. 8 during the transition.

“We expected the investment program to earn an average 4 percent per year in the glide path strategy [in its remaining life along the current trajectory] after consultant and manager fees,” she said.

But given that the program is now not invested as planned due to contract cancellations, she said her best guess is that the investment program will earn around only 1 to 2 percent unless a quick resolution is reached on Public Law 17-51 so the Fund can contract with new managers to fulfill the investment program.

“It is sad that precious time out of the remaining three years will have to be wasted. I had hoped that the community can come together to endorse restructuring and to push back timing of benefit payments—this will earn investment time horizon for the Fund and lengthen the Fund’s life,” she told Saipan Tribune, adding that with the diverted attention, the real goal of lengthening life of the Fund is not being attended to—another side effect of Public Law 17-51.

“Our estimates included all factors, excluding Fund operating expenses, which is growing due to additional needs now for lawyers, re-issuing RFPs and sourcing service providers—then new service providers will need time to ramp up services and this is additional time wasted,” she added.

Fund administrator Richard Villagomez earlier disclosed that the agency has 27 employees and pays $1.2 million yearly in personnel costs, including benefits, health, and life insurances. For money managers, service fees amounted to about $2 million, including the professional fee for its actuarial consultant, Buck Consultants. The Fund pays Wilshire $195,000 per year of service.