Downsizing will further hurt Fund

The NMI Retirement Fund will be hurt if the CNMI government goes through with a possible downsizing, as this will worsen the already huge discrepancy between the growth in the number of Retirement Fund beneficiaries and the Fund’s total contributing membership, an audit report showed.

The audit, conducted by J. Scott Magliari & Company, covered the Retirement Fund’s financial statement for the fiscal year that ended Sept. 30, 2004.

According to the executive summary prepared by the Office of the Public Auditor, the Fund had a total of 2,389 beneficiaries, including retirees, survivors, and people with disabilities, as of the end of FY 2004.

The beneficiaries received a total of $48.4 million in paid benefits, or about $20,000 per person for the year.

Between 1997 and 2004, the number of beneficiaries has grown by 51 percent, while the number of government workers contributing to the Fund has increased by 6 percent. In 1997, there were 3.42 workers for every beneficiary; by 2004, this ratio decreased to 2.4.

“In effect, the Fund today has fewer workers contributing in relation to the number of beneficiaries. Fiscal pressures to downsize the number of government workers will further strain the Fund’s ability to meet its obligations to its beneficiaries unless contributions are significantly increased or beneficiary benefits drastically reduced, or both,” a portion of the audit report read.

The auditors noted that the Fund, as it is, has serious financial problems, despite having net assets that grow by 9.6 percent each year.

The government agency had an unfunded pension liability totaling $516.9 million as of the end of FY 2004.

The magnitude of the Fund’s unfunded pension liability, according to the auditors, reflects certain basic weaknesses in the structure of the Fund. These include the CNMI government’s failure to promptly remit the full amount owed the Fund.

As of Sept. 30, 2004, the government owed the Fund approximately $92 million. Because of the government’s debt, the Fund has been severely restricted in placing long-term investments.

“Had these contributions been paid when due, the unfunded deficit realistically would have been reduced by approximately 20 percent due to the principal contributed and the potential earnings which would have been generated,” the audit report noted.

The government’s non-payment also directly caused the Fund to sell a portion of its Home Loan Portfolio to a private sector bank to raise $3 million in cash for distribution to members.

The Retirement Fund itself earned the auditors’ praise for practicing financial discipline and self-imposing cost-cutting measures.

Administrative expenses of the Fund in FY2004 amounted to $1.65 million, a reduction of $45,611 from FY1998.

“For the 2004 fiscal year the Fund received an unqualified, clean audit opinion from the independent auditing firm of J. Scott Magliari & Company. Additionally, the auditors did not report any audit findings. This is a major achievement for the Fund,” OPA said.