‘Early withdrawals’ impact on Fund damaging in short-term’

The NMI Retirement Fund has mixed feelings about the impact of a new law allowing more government employees to withdraw their pension contributions.

Under the law, employees with 15 years of government service can withdraw their contributions to the Retirement Fund. Previously, only employees with 10 years of service were able to do this.

Fund administrator Mark Aguon said the law is likely to benefit the pension program in the long term. The more people taking out their contributions, the fewer future retirees there will be. That means the pension agency will have less liability to fund.

But more withdrawals also mean the retirement program will have to dispense more money than it does normally. Given that no government contributions are going into the Fund, the short-term impact can be damaging to the pension plan.

As of March 2008, the Fund had $440 million in assets. This year, the Fund is expected to liquidate $45 million in assets to pay benefits and administrative costs. If drawdowns continue at this rate and the government continues to fail to remit any money to the Fund, the pension program will be bankrupt in fewer than 10 years.

Juan T. Guerrero, chairman of the Fund board of trustees, reported that last week, the board approved the release of about $350,000 to 14 members withdrawing their contributions.

Aguon said that since the law was enacted last year, contribution withdrawals had averaged $500,000 a month.

“In general, the law has helped the Fund. But the drawdowns are impacting our cash flow severely,” he said.

The retirement contribution withdrawal law was enacted despite a governor’s veto.

In disapproving the measure, Gov. Benigno R. Fitial warned of the legislation’s potential damage to the financial solvency of the pension program. To remain solvent and continue serving the retirees, the Fund must maintain contributions for investment purposes.

In addition, the governor said the existing 10-year period for early withdrawal is enough and fair to members who are considering whether to withdraw their contribution.

The governor said approval of the 15-year period would decrease the Fund’s investment capital and further risk its ability pay pension to retirees and their families.

The Fund also had strongly opposed the legislation. At the time, Aguon said the bill was not clear on whether the payout would include just the employee’s contribution or the amount of the employee’s accrued benefits.

Aguon added that the proposal might hurt the retirees themselves who rely on the Fund for social security. “If we allow them to divest themselves of this source of income, we are encouraging members to forfeit their only source of social security. This is especially true for those whose entire career have been with the CNMI government,” he said.