Oct. 1 transition to Social Security eyed

Gov. Benigno R. Fitial and Lt. Gov. Eloy S. Inos told lawmakers yesterday that they are targeting Oct. 1, 2012, to “fully transition” all active government employees into the U.S. Social Security program, although that will still depend on, among other things, the ongoing negotiations with Social Security, the fate of an “enhanced” version of House Bill 17-226 that the administration is now drafting, and actions on revenue-generating bills to help prolong the NMI Retirement Fund’s lifespan.

The administration’s pension recovery and survival plan, presented by Inos and Fitial during a two-hour closed-door meeting with lawmakers, also seeks to protect current retirees whose pensions will remain the same.

“The governor and lieutenant governor propose to continue the current pension amount and fund 50 percent through line-item appropriation,” press secretary Angel Demapan told Saipan Tribune.

He also confirmed the administration’s plan to fully transition all active government employees into Social Security beginning Oct. 1.

That could also be the time when the defined benefit plan will be closed, meaning there will be no more new retiree-members. Existing retirees will continue to get their pensions.

Lawmakers interviewed yesterday had different reactions to the administration’s plan, although they shared the same goal of protecting both active government employees and retirees.

Rep. Trenton Conner (R-Tinian), among other lawmakers, said he is not at all optimistic that the Oct. 1 target will be met, and is a bit disappointed with the lack of details on how the government will be able to meet its over $300 million obligation to the Fund-one of the root causes of the pension agency’s crisis.

The government owes the Fund some $320 million in unpaid employer contribution plus interest.

Fitial and Inos met with 19 of 29 members of the Senate and House of Representatives yesterday starting around 2:45pm, four days after the governor placed the Retirement Fund under a state of emergency.

Demapan said the administration is currently exploring two options how to go about transitioning into the Social Security-by way of legislation to be introduced by Delegate Gregorio Kilili Sablan (Ind-MP) or by way of direct negotiations with the Social Security Administration.

Sen. Juan Ayuyu (Ind-Rota), one of only four senators present, said he supports waiting for the administration-backed bill rather than overriding the governor’s veto of HB 17-226 so that active members will be able to have a “safety net” when they retire, which is through Social Security membership, and at the same time withdraw a portion of their contributions from the Fund.

“I just hope that the administration will be able to give the Legislature a draft copy of that bill soon,” he said.

Rep. Joseph Palacios (R-Saipan) and other lawmakers said they would like to see the administration’s draft bill first before deciding whether to support it or not.

New bill

Demapan said for active employees that are members of the Fund’s defined benefit plan, the amount available for withdrawal under the enhanced bill would be whatever is left after the Social Security buyback is paid for.

“That could be 50 percent of more,” he said.

This figure will ultimately be determined by whether or not a five-year buyback is successfully attained.

“However, if there will be no buyback and just a clean start in Social Security, then naturally, the DB members stand to withdraw all 100 percent of their contributions, a far better alternative to the current HB 17-226, which caps it at 50 percent,” he said.

At the employee’s discretion, so much of the amount available for withdrawal may be invested in what would then be the supplemental defined contribution plan, Demapan said.

For DC members, any amount required for the buyback would be paid from the employee’s current investment account, he added.

“Essentially, the DC plan would become a voluntary and supplemental plan. In addition, the government’s contribution to the DC plan will cease when Social Security membership begins,” Demapan added.

The administration is still looking at a five-year buyback, although Sablan earlier said the maximum is six years.

The Social Security contribution will vary between 4 and 6 percent, depending on the years of implementation for the payroll tax cut from the Bush administration.

Bills that need to be moved

Lawmakers and Demapan said among the Fitial administration’s proposal is for the Legislature to move several bills and initiatives that will pump more money to the financially troubled Retirement Fund.

These include reducing tax rebate by 20 percent, approving the administration-sponsored legislative initiative to allow existing hotel owners to buy land fee simple, legalizing casino gaming on Saipan, and a legislative initiative on pension obligation bond. The administration also hopes that tourism will improve as a result of Saipan’s Air launching on July 1.

Ayuyu said he supports diverting revenues to the Fund, although he has yet to see which of the proposals will be prioritized.

Unfunded liabilities

House floor leader George Camacho (Ind-Saipan) and Sen. Frank Cruz (R-Tinian) said they agree with the administration’s suggestion in removing unfunded liabilities.

Demapan said the Fitial administration recommends that lawmakers should take a look at the existing unfunded liabilities such as the provision on adopting children as beneficiaries.

“Essentially, part of the problem is that currently, there are adopted children receiving pension by way of being a beneficiary. In effect, these minor beneficiaries are receiving pensions without even having to work in government. The governor asked lawmakers to take a closer look at the unfunded liability to determine which should be suspended or removed,” he added.

Yesterday’s meeting will be followed up by another one at a time mutually convenient for all, Demapan said.

“The administration is thankful for all the lawmakers that agreed to come to the discussion table. It is unclear why the Senate president failed to participate in the discussion of an issue that seemed to be his top concern,” Demapan added.

Senate President Paul Manglona (Ind-Rota) said he couldn’t get a flight from Rota to Saipan because all seats were taken by those attending the Little League tournament that opened yesterday afternoon.

Manglona reiterated his call for the House to pass Senate bills and initiatives that seek to help the Fund, including one that sets aside 25 percent of government revenues for the Fund.

House Speaker Eli Cabrera (R-Saipan) was off island for a child’s graduation. Eight other members didn’t make it to the meeting; some of them were also off-island.