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Senate approves defined contribution plan
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Posted on May 30 2006
The Senate passed yesterday a bill that aims to create a defined contribution plan, replacing the government’s existing defined benefit plan.
The NMI Retirement Fund expressed no objection to the measure, saying it would be less burdensome to the financially bankrupt government.
“There’s no problem with that. What I do not know is how they are going to find a company or institution to run it,” said Fund administrator Karl T. Reyes yesterday.
He said it is not clear if the present NMI Retirement Fund, which is headed by a board of trustees, would be kept intact.
Senate Bill 15-47 or the defined contribution plan passed during a Senate session yesterday with seven yes votes and one abstention from Sen. Luis Crisostimo. Sen. Paul M. Manglona was absent.
In the initial proposal submitted by the Fitial administration, the bill covers all new employees and eligible existing government employees effective Jan. 1, 2007.
The proposal aims to make it the single retirement program offered by the government to its employees.
The bill defines defined contribution plan “as a plan in which savings are accumulated in an individual retirement account for the exclusive benefit of the member or beneficiaries.”
The existing retirement program is called Defined Benefit Plan, which defines the members’ benefits throughout life and gives the Fund the responsibility to manage the funds.
The administration bill provides that the Fund administrator shall provide a range of investment options and permit a participant to exercise control over his or her assets.
Direct investment of funds shall be in accordance with rules set by the Fund administrator.
The proposal lowers the government’s employer contribution to 4 percent and increases the employees’ contribution to 10 percent.
Currently, the government pays 24 percent of employees’ compensation while the employees shoulder 6.5 percent for class 1 members and 9 percent for class 2.
The employer shall also deduct the contribution from the member’s compensation at the end of each pay period, and shall be credited by the plan to member’s account.
Right now, the Fund has some 8,000 members, including 2,000 retirees.
