Failure of NMI govt to pay its debt ruined the Fund

Having watched the continuing diminishment of the retiree’s defined benefit plan (DBP) to a point where only two or three years of projected life remains in the Fund and the serious negative impact soon to result on the future livelihood and imminent financial ruin for many retirees, I decided to examine the wide range of reasons for the decline of the Fund and list them in one place for consideration by anyone interested.

As a result of the legal wrangling extending over two years since the judgment rendered by the Superior Court in favor of the retirees the effort has not produced any results except payment of fees to lawyers from the member’s invested proceeds. For this reason I decided to compile a “laundry list” of what I would consider to be those adverse actions-and in some instances lack of action-which have assisted in the decline of the Fund.

Toward this end I have attempted to record in one place, in non legal parlance, a retiree’s “Bill of Particulars” which consists of a list of grievances of some DBP retirees with whom I have been in contact directed against the NMI executive, legislative and judicial branches of government as well as the Fund’s Board of Trustees-past and present.

As the Chinese might say, “It’s been a slow death by a thousand cuts.” While the list which follows doesn’t number a thousand reasons-the combined issues as described will certainly impact a couple thousand retirees and their dependents. Here’s the list:

– The NMI’s central government actions appear to have been intentionally designed to eliminate the DBP without regard to the extreme detriment and financial hardship of thousands of current retirees.

When the NMI’s central government publicly admitted in 2011 that it did not have the budgeted revenue to pay the Superior Court’s judgment of $231 million which it legally and contractually owed the Fund as a result of failure to pay its employer’s contribution for those then working-the central government started the process of abandoning all pretense of trying to save it’s DBP and proceeded to openly encourage employees to “cash out” of the DBP and join the much inferior, and inadequate Defined Contribution Plan (DCP). This deliberate strategy on the part of the government has had the result of further weakening the Fund by requiring it to liquidate millions from its base investment portfolio.

The government’s action directed toward encouraging members to join a DCP was nothing more than a debtor’s (the NMI government) manuever to “kill off” its largest creditor (the Retirement Fund). And substitute in its place the DCP for the DBP pension plan. The DCP is not an adequate remedy for employee’s retirement plan-and never will be. This will not become obvious to many DCP participants for many years-and then it will be too late.

For more information on this subject see Dr. Thomas D. Arkle’s analysis entitled: “The CNMI’s DCP-Benefit of Curse?” on the Retiree’s Blog at: http://kixproductions.com/cnmiretiree/

In the opinion of this economist a summary listing of past and present actions and policies detrimental to all DBP Retirees follows:

– For more than 10 years the NMI gernment has failed to fully honor its contractual agreement to pay the employer’s contribution to the Fund as required by local law (1CMC, Div. 8, Chapter 4, Section 8342 and 1 CMC, Div. 8, Chapter 7. section 8371 (a) thru (f).

The June 8, 2004 edition of the Variety quoted the then Speaker of the Legislature stating: “The Fund should be far more concerned about receiving the long overdue employer contributions from the central government which amounts to about $84 million-if the Retirement Fund should sue anybody it should be the government.”

Thus, the above statement of the former Speaker of the Legislature and current governor did-at that time-openly support the action of Fund Trustees to seek redress from the government for the DBP.

– Failure of NMI central government and Legislature to pay the Superior Court’s judgment of $231 million (or even arrange for serial payments) as per Civil Action #06-0367 dated June 29, 2009..

– The questionable investment in 2002 of $5.5 million of retiree’s money deposited in (at one time) a “frozen” account at the Bank of Saipan (BoS) at a ridiculously low annual rate of interest of one (1) percent when, at the time, the rate of inflation was more than 3 percent when other investments could have yielded a greater return on the money.

– Possibility ignoring “Section 8353 by investing Fund’s money in the BoS without the advice of a concurring “Investment of Funds Investment Agent.”

– Failure of the Fund’s Board of Trustees to file suit in Federal Court rather than a local NMI court. knowing, or should have known, the strangle hold on payment of judicial awards and in particular the judgment negatively impacted by 1 CMC, section 2707, (i.e., no awarded court judgment can be paid without a legislative appropriation).

– Employment of what would appear to be an excessive number of “outside” attorneys to perform many services which could have been performed by “in-house” RF staff.

– The Legislature’s passage of-and the acting governor’s signature concurrence (against the advice of the Fund’s Board of Trustees) and subsequently the judiciary’s failure to strike down the law identified as P.L. 17-51 “Derivative Lawsuit Act” thereby creating administrative chaos for the management of fund investments resulting in as yet unaccounted loss of member’s money. See Variety Editorial, Oct. 14, 2011.

As noted by the Fund’s attorney as quoted in the Variety (Oct. 19), “Although the Superior Court did not grant the Fund’s emergency request for a temporary restraining order suspending the application of P.L. 17-51, the Court had not ruled on whether the law was constitutional.” The purpose of a TRO was to prevent harm while a challenge was considered by the Court, however, the Court found the harm to the beneficiaries in not being able to file lawsuits under the new law outweighed any harm to the Fund.

As a result of the above law all of the Fund’s investment consultants resigned where upon the Fund administrator was quoted in the Variety as stating, “The Fund has been placed in extreme situation of not having an investment consultant due to PL 17-51 and forced to adopt an ultraconservative allocation-cash-until the Fund obtains the services of an investment consultant.” As a result the Fund’s board decided on Oct. 13, 2011 to liquidate their assets into cash.

In the absence of advice from any investment consultant, the Fund placed approximately $265 million in financial institutions that are affiliated with CDARS (Certificate of Deposit Account Registry Service) with a limited FDIC insurance guarantees only up to $250,000 in deposits.

– Withholding the NMI government’s employer contribution to the Fund from employees paid from Federal appropriations.

– The complete indifference extending over a ten year period on the part of the legislative and executive branches to work together to solve the Fund’s problems by supporting any meaningful solution toward arresting the dissipation of the member’s base investment portfolio.

– Absence of information-and lack of planning on the part of the central government and Fund Trustees for continuing the group medical and life insurance programs for participating DBP retirees once the collapse of Fund occurs. Those participating employees of advanced age with preexisting medical issues who have contributed years of premium payments stand to lose their policies with little hope of finding adequate replacement coverage.

The above plan was originally encouraged and sanctioned by the government for the benefit of participating employees and may be abandoned when the Fund collapses.

– Failure of the central government to adhere to its signed “Memorandum of Understanding” with the Fund agreeing to make payments of $500,000, (later increased to $850,000) biweekly to make-up for their neglected employer contribution payments which were in arrears. The government failed to honor its agreement.

– Failure to implement ‘timely” collection efforts on delinquent home loans provided by the Retirement Fund or otherwise delayed and / or failure to instigate foreclosure action on mortgages when all efforts at collection of delinquent loans have been exhausted.

– Pension payments earned by and for all members of the Fund through their “defacto” investment agent, namely, the Retirement Fund and its money managers largely consisted of the “employee” payments to the Fund and the interest earned from investments.

Absent from this funding source are more than ten years of the government’s employer contributions which, had they been paid as required by law, would have strengthened the Fund rather that contribute to its imminent demise in two or three years.

In my judgment it was a grave error for the government to “opt out” of the U.S. Social Security program in the first place which, at the time and until 2007, was substituted by the NMI’s own DBP retirement plan. This plan required the mandatory participation by all NMI employees and then-all the while-until 2007 the government subjected Fund members to the above diminishing policies, actions and decisions consisting of the above laundry list of negative impacts which, taken together, will have resulted in “killing off” the Fund-leaving retirees on a sinking ship with many, if not most, of advanced age and many in poor health.

More than a few retirees are in for a lot of misery and a much lower standard of living in a couple years.