Fund proposes to float $200M pension bond

To reduce the government’s unfunded liability with the NMI Retirement Fund, the agency plans to float a $200-million pension obligation bond, possibly by next year.

Fund administrator Karl T. Reyes said yesterday that this bond would significantly cut the government’s unfunded liability, which amounts now to $526 million.

At the same time, it would result in the Fund reducing the government’s employer contribution rate, which is currently up at 36.7 percent, from 24 percent last fiscal year.

Reyes said the Fund intends to submit this pension obligation bond proposal to the Legislature after the Nov. 5 elections.

“We’ll wait for the next Legislature,” he said.

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.

Only three agencies have so far complied with the 36.7 percent rate this month. The Public School System has only been able to pay at 24 percent rate.

“Our plan is to float $200 million. When you invest that, you’re reducing the unfunded liability to $326 million. That would then lead us to reduce the contribution rate,” said Reyes.

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

“What we’re doing is converting the government liability into assets of the Retirement Fund,” he said.

He said that 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.

Reyes said this is actually lower than the current government payable of $835,000 per pay period in employer contribution.

“If the government pays the bond, it would be cheaper than the $835,000. It’s a better vehicle. However, they can continue to pay at that [$835,000] level to further reduce the remaining $326 million unfunded liability,” said Reyes.

He said the bond, if pursued, would be paid up to a maximum of 30 years.

This particular bond, he said, requires that it should be under the name of the Retirement Fund, not the Commonwealth Development Authority, the government authorized agency to borrow money.

“Federal grant requirements provide that the Fund should be the recipient,” said Reyes.

The government’s unfunded liability of $526 million includes the $80 million arrears in employer’s contribution. This amount reflects the central government’s unpaid employer’s contribution from December 2001 to the present

The Fund said that the present administration has been paying its obligation regularly, and more at over $800,000 per pay period, but such payments were credited to the oldest accounts covering fiscal years 1998 to 2001.

The Fund said that the government’s payment agreement with the agency calls for some $500,000 payment every pay period.

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 Sept. 2001.

Reyes said total employer’s contribution paid from October 2001 to September 2005 amounted to $56.3 million.