The Fund and govt’s costly neglect

[I]Editor’s Note: The following was originally published on July 11, 2001. It is being reprinted here to give readers an idea of how far—or how little—things have changed at the NMI Retirement Fund in the five years since this column first came out.[/I] [B][I]Second of a two-part series[/I][/B]

As pointed out in Part 1 of this series addressing the serious condition of the Retirement Fund and the government’s failure to correct this urgent situation, the result can only mean an eventual meltdown of the Fund and jeopardize the financial security of many of the Fund’s members, both at the present and those in the future. Many politicians are under the mistaken impression that the Fund has plenty of money to meet its bimonthly allotments to members. It does not. The Fund’s invested money should never be used for any purpose other than to remain invested for the sole purpose of earning interest, which will be available for retirement payments in the future. The following hypothetical example will illustrate why this is necessary.

The purchasing power of $100 from a retirement check spent today is $100. But at an annual inflation rate of, say, 10 percent, if it is not invested to make up for the erosion of its buying power, in one year the original $100 would buy only about $90 worth of goods and services. In 20 years the $100 would only have the purchasing power of about $15. It is almost as certain as death itself that money will lose its value in terms of purchasing power in the future. While the inflation rate on the islands has been running close to, or even higher than the above level, no one can predict with precise certainty what it will be in the future. Thirty-five years ago a gallon of gasoline cost 35 cents. Today, it’s about 10 times that amount. A roundtrip airline ticket to Guam in those days was $28. The lesson: Over time it takes more money to purchase the same amount of goods or services. The Fund presently allows for this by making an annual COLA adjustment (remember this piece was written five years ago).

Turn the example around and invest the $100 at 10 percent interest and in one year the investment is worth $110. In 20 years its value will be about $850. Of course, by that time gasoline might be $10 a gallon. The lesson? It’s as simple as this: Invest and gain; don’t invest and lose. The Fund must not only keep up; it must keep ahead. Otherwise retirees will have less and less purchasing power in the future and their standard of living will decline. The only good thing that can be said about the scourge of inflation is that “a dime’s worth of candy won’t make a kid sick.”

The Fund has loaned money to permit homeownership on the islands, provide a secure income for widows and minor children of deceased retirees, provide an income for disabled members, and finance social infrastructure such as the House of Justice. All this is made possible because the Fund has invested and managed the contributions of its members and preserved its capital base. It must continue to do so. Wisely, (in the past) the Fund’s administrators resisted touching any of the member’s invested assets to pay pensions each month. However, the Fund is currently losing millions of dollars by not having available for investing the unpaid contributions of the government’s obligated employer’s share.

Had the government paid its share, and the money invested, the Fund would be worth much more than it now is. It is this amount of money that has been lost. If you don’t believe this—ask someone who is knowledgeable about investment—your banker, a CPA or a tax accountant.

It has been alleged that the Fund has threatened to sue the government in an effort to get it to “pay up.” I suppose there is nothing to prohibit interested members in considering a class-action suit as well.

If the government simply states that it is broke and can’t pay, this can affect its future bond rating. If a court were to require the government to declare bankruptcy, this could open an entirely new can of worms as conceivably, government assets, including land, rent collections, etc., could be attached or sold by the court.

The Fund has invested heavily in the U.S. and Asian economies; there’s really no place else to invest to diversify its portfolio. These economies are in trouble (circa 2000) with the result that Fund management has enough on its hands to worry about without the government’s lack of payment of that money which it owes. This problem has festered like a hemorrhaging wound for many years and it’s getting worse. Band-aid efforts won’t help in the long run.

Since the elections will soon take place and political pocket meetings will be held all over the islands, I would like to suggest to those former government employees who are now retired and those planning to do so sometime in the future that they request each candidate running for office to bring a prepared, signed statement that, among the first items on their agenda, if elected, will be to solve the matter of the government’s outstanding financial obligation to the Fund.

I have been around long enough to know that island politics is everything to some people . This time, however, it is also about money: members’ money, big money. This is an extremely serious situation. Times are far more complex for the islands than during the days of the Trust Territory and, indeed, only a few years ago. Intelligent, knowledgeable lawmakers are needed now more than ever if the many problems facing the Commonwealth are to be resolved to the advantage of the people.

Retired elderly people and the infirm don’t need the worry over whether their monthly retirement pension is in jeopardy. Non-payment to retirees, if it were to occur, would be nothing short of tragic, disgraceful and irresponsible on the part of some in the Legislature.

Not all retired members pay into the health insurance program and many may not have the money to pay for the increasing cost of prescription drugs. There are cases where people with limited income can’t pay for a full prescription and will purchase only half of what is necessary and split the portion they do have to prolong the use of the medicine, thus endangering their health.

A newsletter should be issued by the Fund to keep members informed of issues of interest as well as the voting record of legislators on matters related to the retirees’ equity in the Fund.

Perhaps the time has also come to form a local association of retired people similar to the powerful American Association of Retired Persons and join together as a forceful voting block to make certain that only those candidates dedicated to solving the Fund’s financial problems by working out a permanent arrangement for the government to pay what it owes the Fund should be considered for office. Indeed, perhaps the time has come for one or more retired people to run for elected office.

The members have a good retirement program. They had better speak up to protect it. Contact your representatives and tell them what YOU want done.

[I](William H. Stewart is a forensic economist, historian, and military cartographer.)[/I]