‘Some laws contributed to Fund’s deterioration’

The deterioration of the Retirement Fund, according to Fund board chair Juan T. Guerrero, could be blamed in large part on several laws that ate away at the Fund’s solvency.

Guerrero said the Legislature continued to pass laws that have added to the fiscal emergency of the Fund.

The chairman stressed this point in comments he had on Senate Bill 16-36, which seeks to allow the Fund to pay pensions proportionate to employer contributions.

He said that in October 2007, House Bill 15-277 was vetoed by the governor, but overridden by the Legislature creating Public Law 15-98. This allowed Fund members with up to 15 years of government service to withdraw their employee contributions.

In order to comply with this law, Guerrero said the Fund was forced to liquidate assets to meet payment demands.

“This law is a further deterioration of the Fund’s assets, as well as drastically accelerating the cash outflow, during a stock market downward cycle, effectively locking in our investment losses,” he said.

Public Law 15-26, on the other hand, mandated a reduction in the employer contribution from 36.7 percent to 18 percent for all salaries paid out of the general fund, with the difference to be deemed as a liability of the government that will not be excused or waived. That law was enacted in January 2008.

In May 2008, Public Law 16-2 was enacted. According to Guerrero, this law acknowledged that the government was unable to meet the employer contribution of 18 percent mandated by Public Law 15-126. He said this law set the employer contribution at 11 percent for all employers.

With respect to Senate Bill 16-36, Guerrero said its initial draft prior to any amendment set a provision for the Fund to reimburse members who receive proportionate pension the difference of their full pension if the employer contribution is paid within six months.

Initially, he said, the Fund board did not want to entertain any type of refund for the difference between the proportionate and full pension.

However, as a compromise the board agreed to accept the six months to allow for any refunds because it would be an incentive for the employer to pay, Guerrero said.

He said the Senate amended the six-month provision to two years and now the House has further amended this provision so that it will be perpetual.

“The refund translates to not just the Fund’s lost opportunity from investment income. It will also force the board to liquidate their investment in order to meet the Fund’s payment obligations,” he said.

Guerrero added that the Fund will be forced to once again expend its meager resources in order to properly document and keep records intact and accurate.

“This amendment, coupled with all unpaid employer contributions and monies not remitted to the Fund, are prefect examples of how the Fund continues to be deteriorated by legislation,” the chairman said.

He said the Fund and the board will continue to strictly adhere to the board’s resolution allowing only Fund members with full employer contribution to retire.

“Unfortunately, this decision will have a negative effect [but] the only other alternative would be a hard freeze that will be considered as a last resort—something that will be discussed soon with possible implementation if the Fund’s fiscal condition does not improve,” Guerrero said.