‘Bond obligation must be initiated by administration’

NMI Fund board chair Joseph Reyes favors the issuance of a bond obligation to reduce the government’s unfunded liability but it has to be initiated by the Executive Branch.

“I recommend that it [bond issuance] be looked at, but it’s not the board to float such a bond. It should be the administration,” he said.

A few months back, Fund administrator Karl T. Reyes disclosed that the agency plans to float a $200-million pension obligation bond, possibly by next year, to significantly cut the government’s unfunded liability of $526 million.

He also said that it would result in the Fund reducing the government’s employer contribution rate, which is currently up at 36.7 percent.

He said the government’s inability to pay the increased rate of 36.7 percent would be a major factor in pushing for the loan.

The board chairman said that such a move would help make the Fund self-sustaining.

“We need to retire the unfunded liability and the government debt. Doing this would not only help the government improve its financial rating but it will also contribute to a drastic reduction in employer’s contribution to a more reasonable rate,” said Joseph Reyes.

He said he wants the employer contribution to be reduced to 10 to 12 percent.

“The reason why the board adopted 36.7 percent is that we are also mandated by law to collaborate and adopt the findings of an actuarial study because we are obligated as a board to have the Fund funded,” said Joseph Reyes.

For his part, Karl Reyes said that if $200 million worth of bonds are issued, it would automatically reduce the unfunded liability to $326 million. This would allow the Fund to reduce the government’s contribution rate. In a way, the Fund would be converting the government’s liability into assets.

He said that if the $200 million bond is realized, the retirement contribution rate would be down to 21 percent.

If the bond interest rate is set at 6 percent per annum, the government’s monthly payment would be $1.2 million or $600,000 per pay period. This is lower than the current government payable of $835,000 per pay period in employer contribution.

But he said that the government can continue to pay at $835,000 to further reduce the total unfunded liability.

If pursued, the bond would be paid up to a maximum of 30 years.

Finance authorities said that payments to the Fund were current until June 1998. The Fund said that the government ceased payments altogether from August 1999 until September 2001.

Karl Reyes said total employer contributions paid from October 2001 to September 2005 amounted to $56.3 million. This was credited, however, to the oldest outstanding accounts.