Retirement solutions

It appears that the future handling of the CNMI’s Retirement Fund structure is in the paper just about every day—and it should be. Problem is, I’m getting a little confused because some statements being printed appear to contradict each other and I have to wonder if newsprint actually represents the true meaning of what is being conveyed by the government. I’ve had the pleasure of meeting and talking with Mr. Muna and Mr. Inos on a few occasions. I have great respect for them, enjoyed speaking about these matters and others and feel that these men know what they are doing. Now, we need some help to know just what the CNMI is proposing in this regard.

I hope that you, Mr. Muna, can help us better understand some of these things. A statement attributed to you appeared on Sunday: “Do you want the government to increase the taxes of everybody to take care of the few? You want me to increase the taxes of 70,000 people so I could pay 8,000?” Now, that has a lot of implications. First, I don’t think there are 70,000 wage earners in the CNMI paying taxes. And even if there were, not all of them are government workers, so 70,000 wage earners would not contribute to the governments’ Retirement Fund anyway—only government workers do that through payroll deduction and government matching funds.

Now, here comes the Monday paper and, lo and behold, one of the two bills submitted by the administration contains sections raising the employee contribution to the Retirement Fund by almost DOUBLE (over six years). Isn’t that imposing a higher tax on these employees? And yet, all other wage earners in the CNMI continue to pay little or no real taxes (after rebates, etc.) and still demand to receive government services and benefits. Why shouldn’t EVERYONE who benefits from having a government help pay for it? Yeah, I know, these are two different subjects, but they are related.

Second, I thought 8,000 is the number of government employees currently on the roster making payments to the Fund. How many retirees are there drawing from the contributions made by the 8,000 (and from their own contribution prior to retirement)?

Now, I’m no economist, or CPA, budget analyst or other expert in this field. But I do possess a high degree of education and the ability to see logic in pathways to an end. I would like to offer some of those suggestions you asked for on Sunday—maybe they will help, maybe not; but for sure, no one has all the answers.

Fix the current system by changing what has been a cash cow giveaway program for many years. Stop all the bleeding through “early” retirement, cash withdrawals, “bonuses”, huge benefit amounts, etc. Set up “vesting” at three years instead of 10. Once vested, NO withdrawal until retirement age is reached. You leave government service; it stays there until you are eligible to withdraw. Set up “eligibility” for a minimum 30 years service/age 60 (except for certain specialized categories such as police/fire) with a base rate of no more than 60 percent of base salary for the last high five years—and drop the highest and lowest years from the five so you average only three of the five-year span. The longer you work, up to 40 years, the higher the rate you can draw—but only up to a maximum of 80 percent and CAP the highest benefit amount at a “reasonable” rate regardless of average “high three” pre-retirement income level. That way, the VERY high earners can (and will) set up their own supplemental retirement systems. And, yes, it IS necessary to “step up” the rate that employees contribute to the system over a period of years—this is normal in all systems as the system support needs, number of retirees in ratio to workers and retiree longevity increases.

We need to get this program into line with a “real” retirement system. People here have been living under a very GENEROUS system since its inception. That was fine, but it catches up with you eventually and changes need to be made. I’m really sorry if some of these things aren’t too well received in the public sector but I’m afraid the alternatives are far worse. Maybe, if we fix the current system, we won’t be needing those alternatives.

As to what to do with those huge “past due” government payments to the Fund? Wow! I don’t think anybody is going to come up with that one unless they are some sort of magician. Once that far behind, forget it. Maybe we just have to take the loss and go forward with a better program. As far as “loaning” CUC $40 million, forget that, too. I was very impressed with Tim Villagomez’s report about CUC—until it came to “long range” planning. It just wasn’t there. Simply put, we must get off the diesel fuel option—and soon. Rates already need to be pegged at 21 or 22 cents—and this will continue to rise over the next few years to 30 cents or more, guaranteed! To continue with a diesel fuel plan longer than another three-four years is suicide. I am currently doing research for the Mayor of Tinian on the latest generation of high-pressure water reactors – goal: three years; electricity: 5 cents per KWH for 60 years! Financing: DOE grant at 50 percent plus 10-year rebate. Contractor: private. Repayment: 10 years for $15 million at electric rate of 10 cents per KWH. I’ll be happy to share it with you. By the way, there are about three of these reactors to be given away to selected communities over the next four years as prototype installations. One has already been selected—Galena, Alaska; pop: 1,000. I’m trying to get Tinian on that list.

On the other hand, creating a “portable” system has been used before and remains an option—but be careful, for it is a two-edged knife. The Federal government was such that it could transfer its retirement system (CSRS) in much the same way the CNMI government is now proposing to transfer its “defined benefit” plan. BUT, the Federal government was able to shift employees from CSRS to FERS—a new division of the old standby “Social Security System.” That made it truly “portable” and became a viable part of an existing system. (I’m real glad I stuck with CSRS!). At the same time the Feds offered personal IRAs. But these are supplemental only. That’s because IRAs are voluntary and limited—and not too many individuals have the will or the ability to take that money from the paycheck and put it away long term voluntarily. I suppose the government could make a mandatory before-tax contribution to one’s personal IRA—but the amount is severely limited if you are a high wage earner, or even worse, over-burdening if you are a low wage earner.

I guess what I’m trying to say here is, “What are the alternatives to our current defined benefit plan if you do away with it?” Not many. If an IRA is the only remaining option for all those who are not currently ”vested,” then I sure don’t want to be a CNMI employee with anything more than a few weeks service but less than nine years and 51 weeks of service come Christmas. I wonder if this might not cause a general mass resignation and subsequent run on the system for cashback by those “non-vested” employees just before implementation?

Dr. Thomas D. Arkle Jr.
San Jose, Tinian