Fund officials cite ambiguities, problems with another bill

After the enactment of the controversial Beneficiaries’ Derivative Act, the troubled NMI Retirement Fund is now pleading with the Legislature to take into consideration its input and concerns before passing another bill that will impact the Fund’s precarious fiscal health.

House Bill 17-226 proposes to allow all non-retired members of the pension fund to withdraw their contributions without severance of employment or penalties.

Fund administrator Richard Villagomez on Monday wrote House Speaker Eliceo Cabrera (R-Saipan), saying the bill has “ambiguities and problems” that need to be rectified.

He said the bill has merits to the extent it attempts to protect the contributions of defined benefit plan members that have contributed into the Fund and have not yet retired. However, it does not provide any safety net or solutions for those who are now retired, receiving benefits, or will retire in the future.

As of Aug. 31, 2011 the value of pension portfolio is $278.598 million. If the bill becomes law, the Fund will be left with only $175.3 million-after deducting the projected $103.288 million withdrawals allowed by the measure-for retirees that are currently receiving their pension. Villagomez said the bill will allow 2,996 active members to withdraw their employee contributions, and at the same time about 2,940 members receiving benefits as retirees, surviving spouses, and surviving children will be left with only a little over $175 million to support their accrued benefits. The cost of annual benefits alone based on a 2009 valuation report is $63 million and this is expected to be higher if others retire or get a refund.

Also, although the bill intends to eliminate any and all future liabilities of the Fund from active members by allowing them to withdraw, it does not address the current liabilities owed to those that are retired or receiving benefits.

“In its current form, the bill removes the funding mechanism for current contributions. Unless an alternate funding mechanism is put in place, the bill will diminish and impair the benefits of retirees and their surviving spouse and/or children, contrary to the constitutional protection of those benefits,” said Villagomez.

He said the current funding mechanism established by Public Law 6-17 is based on a “percentage of payroll” of active employees who are members of the DB plan and this mechanism became an issue when the defined contribution plan was created in 2007 and no new members were allowed in the DB plan.

The new bill, he said, immediately and completely makes obsolete the “percentage of payroll” funding mechanism if all DB plan members are given the option to refund or convert to DC plan.

“The new funding mechanism must be in place for the Fund to continue payments to approximately 2,940 retirees and beneficiaries and to ensure we respect and uphold the constitutional protection of accrued benefits,” added Villagomez.

The administrator provided the House recommendations to address its concerns and problems. Among these is the establishment of transitional and permanent funding mechanisms.

The Fund official also asked for lawmakers’ consideration in providing them an opportunity to present their concerns before acting on the bill.