‘Giving Fund $15M more each year for 10 years will make it self-sustaining’

If the CNMI government will infuse the Settlement Fund with $15 million more each year for at least 10 years, the government’s contribution can be reduced significantly starting in fiscal year 2026, and the Fund can be self-sustaining instead of being depleted by 2019, according to Fund trustee Joyce C. H. Tang.

The major predicament is the Settlement Fund will become pay-as-you-go by 2019, but if there is that $15 million additional funding each year, the Settlement Fund’s assets will reach $215 million by 2026, said Tang in her report to the court on Friday.

Settlement Fund trustee Joyce C. H. Tang and her counsel Dean Manglona emerge from the U.S. District Court from the NMI on Friday after a hearing on Friday. Tang made a presentation on her report about the Fund’s fourth quarter fiscal year 2014 and first quarter fiscal year 2015. (Ferdie de la Torre)

U.S. District Court for the NMI designated judge Frances Tydingco-Gatewood, who presided over the hearing, said the anticipated depletion of Fund assets by 2019 is “scary for the retirees.”

She underscored the need to infuse more money into the Settlement Fund so its investment horizon would be lengthened.

The judge, however, expressed appreciation to Gov. Eloy S. Inos for working diligently with the Office of the Attorney General and the Department of Finance in making sure that retirees get paid.

Tang disclosed that for fiscal year 2014 and as of the present, 100 percent of retirees got their payments.

Tang believes the $15 million annual Saipan casino licensing fee from Best Sunshine International, Ltd. should be used for either payment of the 75 percent payments and/or given to the Fund to be invested so that the investment horizon can be extended.

The casino gaming law, Public Law 18-56, requires Best Sunshine to pay a $15 million fee for the first five years. Currently, $10 million of the amount is allocated to pay the 25 percent reduction in pension.

House Bill 19-21 seeks to amend the casino gaming law to dedicate the entire license fee to cover the 25 percent of the pension payments that were reduced under the settlement agreement in Betty Johnson’s class action.

In an interview after the hearing, Tang said they believe the $15 million is a viable investment plan, but it is a decision that will involve everyone in the government and the retirees.

“This plan needs to be further reviewed, investigated, studied, and discussed before I think we can to really take this plan to the next step,” she said.

Tang said the government would continue making the payments under the settlement agreement in Betty Johnson’s class action and then the $15 million from the casino license fee would go to the Settlement Fund and be invested.

“It’s up to the government whether they would like to continue making the 25 percent payments,” she said.

Margery Bronster, counsel for Johnson, said in an interview that since the $15 million is currently being used to make up the 25 percent cut in retirees’ pensions, “there is obviously a balance there and that is something that is going to be a difficult situation to try and decide which is best.”

Bronster said they are, however, pleased that the Fund is working, that retirees are getting paid, and that the government has chosen to put additional funds toward the beneficiaries.

“What’s going to happen is if we go along with the plan, then comes 2019 the government is going to have to pay 100 percent of the benefit on an annual basis,” Bronster said.

She said a suggestion made by Settlement Fund investment consultant Wilshire Consulting was that if the government sets aside a little bit more money now toward the Fund, it would diminish the amount they would have to pay later.

She said Wilshire believes it wouldn’t make the depletion so immediate because in 2019 the government is going to have pay every single dollar.

“The idea was hopefully to have more investments so that the government would not have to come up with all the money for the retirees,” Bronster said.

In her presentation, Tang said assuming that the government is contributing $15 million more each year for the first 10 years, the Fund can invest more aggressively and achieve investment return of at least 5 percent per year.

Tang said government contribution to the Fund can be reduced to $10 million a year starting fiscal 2026, and the Fund can be self-sustaining.

She said the total contribution savings to the government are estimated to be over $100 million in the next 30 years.

Tang disclosed that the beginning value of the Fund’s investments on Oct. 1, 2014, was $95.3 million, while its ending value on Dec. 31, 2014, was $86.8 million.

Maggie Ralbolvsky, principal of the Fund’s investment consultant Wilshire, also made a presentation telephonically about the Fund’s investment strategy and update.

Ralbolvsky said the Fund will have no assets by 2019 without additional investments.

Assuming that the government will put in an additional $15 million yearly for 10 years, they could arrange a more aggressive investment portfolio that could earn an average return of at least 5 percent per year.

Bronster pointed out that in the settlement agreement, there is a provision that encourages the government to put more money into the Fund to make its investment glidepath longer.

Bronster said the Judiciary Building’s $5 million loan balance would also help extend the Fund’s glidepath.

Tydingco-Gatewood noted that the only current source of additional investment is the $15 million from Best Sunshine. She urged Tang to pursue the casino license money diligently so retirees and government officials should know about the Fund’s need for more funding to avoid depletion by 2019.

“Time is of the essence,” Tydingco-Gatewood pointed out, telling Tang to focus on extending the Fund’s investment horizon.

Tang said the $15 million issue requires a lot of work because it’s a government’s policy decision. She said they have not discussed that with Inos yet but they intend to do that after Friday’s hearing.

Tang said as the Fund’s investments are being liquidated to pay pension payments, the amount available for investment decreases and the investment horizon is shortened.

Because of the Fund’s inability to take high levels of capital market risk, a more conservative investment capital policy is required, she said.