Fund denies PSS request for rate hike exemption

The NMI Retirement Fund has denied the Public School System’s request for exemption from the rate increase in retirement contribution beginning fiscal year 2006.

“We completely understand where PSS is in terms of financial difficulties but that’s the same challenge we face. Unfortunately, we could not exempt PSS from paying the 36.7 percent beginning Oct. 1, 2005,” said Fund administration Karl T. Reyes in a July 28, 2005 letter to Education Commissioner Rita H. Inos.

The Fund notified all agencies middle of May this year that it increased the contribution rate from 24 percent to 36.7 percent as recommended in a 2003 actuarial study.

Reyes said that the Fund should have actually raised it to 39.4 percent beginning FY 2003 “but the board suspended such implementation because of budgetary constraints.”

He said the Fund is mandated by law to seek an annual independent actuarial valuation to determine the appropriate rate to protect the integrity of the agency.

In a July 27 letter to Reyes, Inos said that PSS should be exempt from the rate increase because it has been paying its dues on time.

She said that the reason for the increased contribution “is the nonpayment of the employer’s share by the [Babauta] administration.”

“Since PSS has always paid its employer’s share of retirement and insurance, it is neither reasonable, nor fair to require PSS to pay a higher rate. This higher rate penalizes PSS when, instead, we should be rewarded for being faithful in paying the employer’s share. …We lived within our means and paid our bills. Now, we are being required to help pay off a debt that we had no hand in creating,” said Inos.

The 12.7-percent increase, she said, will affect federal program funding and will have “an even greater impact on local funding for the PSS.”

In particular, Inos said that Special Education Program part B will have to lay off some 40 teacher aides from its current 148 staff.

The increase in contribution, she said would also result in a decrease of funds available to schools to buy instruction materials.

Inos said the increase will cost $1.7 million for federally funded personnel and $5.1 million for locally funded staff in FY 2006.

If FY 2005 is included, from June 11, 2005, the impact of this cost increase will amount to $600,000 for federally funded personnel and $1.6 million for local staff.

PSS employs over 1,000 personnel.

A month earlier, on June 28, Inos asked the Fund to delay the implementation of the rate increase from June 11, 2005 to Oct. 1, 2005.

“The reason is that this fiscal year is almost over and there are not any funds available to pay for this unanticipated extra expense,” she said.

Further, she said that PSS is not a revenue-generating agency.

“Any rate increase be timed to coincide with the next budgetary cycle that begins Oct. 1,” said the PSS.

Reyes said that the Fund granted the Oct. 1 implementation of the rate increase.

Inos, together with the Board of Education, had also petitioned the Legislature to help convince the Fund to exempt PSS from the rate increase.

Last week, Rep. David M. Apatang, who is running as an independent lieutenant gubernatorial candidate in this year’s election, introduced House Bill 14-369 to meet the PSS request.

In his bill, Apatang cited that the law, Public Law 13-60, signed into law on Dec. 5, 2003, mandated the Fund’s board of trustees to commission an actuarial study within 60 days and “shall lower if warranted the government contribution.”

He said that 1 CMC section 6362 shall review the entire retirement system and recommend appropriate statutory provisions that would significantly lower the government’s contribution rate over time.

“Instead, the board of trustees has decided to increase the employer contribution rate of all government departments and agencies,” said Apatang.

The bill aims to exempt PSS from a rate increase for the next five years.

The Fund said earlier that the rate increase was triggered by the nonpayment of the central government—Executive Branch, Legislature, and Judicial Branch—of its employer contributions, now totaling some $80 million.

In a report last April, Finance Secretary Fermin M. Atalig said that payments to the Fund were current until June 1998 when a series of outside events such as the Asian currency crisis resulted in reduced government revenues from nearly $250 million to $213 million or less.

Atalig said that the government paid the oldest liabilities first, which covered FY 1998 to FY 2001. He said the government is now paying FY 2002 liabilities.

He said the government paid the Fund $18 million in FY 2004.

The administration said that the government had failed to pay for retirement in 2000 and 2001.

It said that it currently pays the Fund some $850,000 every pay period for employer’s contribution.

Reyes said the central government’s average annual contribution to the Fund totals $24.4 million while the autonomous agencies’ remittances amount to $15.2 million.

There are some 5,000 active members of the Retirement Fund.