New actuarial contribution rate of 60.8 pct. approved

The NMI Retirement Fund approved a new contribution rate of 60.8686 percent for fiscal year 2012—a 38-percent increase from the current 37.39 percent.

The new employee contribution level, which was approved during the board of trustees’ regular meeting on Rota Friday, will take effect in October this year.

The board, in its memorandum to all departments yesterday, said the decision was based on a study conducted by its actuarial consultant, Buck Consultants. The Fund advised government agencies to adjust their budget submissions for the new fiscal year to reflect the new rate.

Based on the result of the actuarial valuation presented by Buck Consultants principal Dylan Porter last month, the 60.8686 percent reflects $48.914 million in yearly government contribution to the Fund.

The calculated figure is composed of the following components: $2.8 million contribution for the Class I and II members; $44.3 million for amortization of unfunded accrued liability; $883,589 for the interest on accrued but unpaid government contributions; and $883,967 in allowance for administration expenses.

The employer’s contribution to the Fund is determined actuarially every year. From fiscal year 2009 through 2011, the government was mandated to pay 37.3909 percent in employer’s share to the Fund.

For many years, these expected contributions were not realized, resulting in the current dismal state of the retirees’ pension program.

As of May 31, 2011, the Fund’s assets were valued at $320.4 million while its accrued unfunded liability was estimated at $619.7 million as of February 2011.

This means if the pension program is suddenly terminated, the Fund will not have enough money to pay all its obligations to members.

The Superior Court had determined in June 2009 that the central government owes the Fund over $231 million in unpaid contributions. That amount continues to increase.

The Fitial administration said yesterday that the new actuarial rate may not also be realized due to dwindling financial resources and collections

“Obviously, the central government does not have the ability to make employer contribution payments at the rate of 60.8 percent, but the administration has taken major strides in good faith to address the situation,” said press secretary Angel Demapan, the most notable of which is the $10 million line-item appropriation in the governor’s proposed fiscal year 2012 budget.

Demapan said that through the system of a line-item appropriation, the Fund would stand to receive payments greater than if it were to be calculated by way of percentage of payroll, given the decrease in payroll dollars in the midst of ongoing austerity.

This is why the administration is urging the Legislature to pass H.B. 17-99, which proposes this method of payment for the employer contribution so it could move away from the actuarially determined rate as currently required by law. The bill proposes to appropriate a specific line-item amount.

“This proposed action is consistent with negotiations in the ongoing lawsuit by the [Fund] to collect employer contribution funds owed them. We strongly urge the Legislature to quickly act on H.B.17-99 to support this change in employer contribution payment method,” said Demapan.

Besides a higher contribution rate to the Fund, Buck Consultants also disclosed that implementing across-the-board cuts in benefits to members would help the Fund prolong its existence. So far, the board has only approved the new actuarial contribution rate.