Retirement Fund’s opportunity loss estimated at $15 million

In just the few months it was absent from the international stock market, the CNMI Retirement Fund lost some $15 million it would have otherwise earned, according to estimates by its investment consultant, Wilshire Consulting Associates.

Wilshire principal Maggie Ralbovsky told the Fund board Friday that the Commonwealth pension plan missed some “good months” in the market since liquidating its stock investments and transferring them to the CDARS program. The calculation, she said, is based on the Glidepath strategy it recommended in 2011.

Ralbovsky pointed out that the U.S. stock market bounced back from a negative return in the third quarter to post an impressive 12 percent total return in the fourth quarter, producing a modestly positive return of 1 percent for fiscal year 2011.

That was the time when the Fund stopped investing in the stock market after the departure of its investment consultant and actuary. The Fund is not allowed to make international investments without these two.

In her presentation, Ralbovsky said the U.S. stock market is up nearly 52 percent in the last three years and 101 percent since March 2009. All broad market sectors, according to her, posted gains in the fourth quarter, led by a surge in the energy and industrial sectors.

According to Fund administrator Richard Villagomez, the Fund’s portfolio is estimated at $253.4 million as of Feb. 17, invested in the following areas: mutual cash and cash equivalent, $164,021; Vanguard short term bond, $68.6 million; PIMCO, $75.1 million; CDARS bonds, $74.3 million; Dreyfus general treasury prime, $33,600; and JP Morgan, $1.4 million.
Undecided
Despite recommendations to cut the benefits of members and other beneficiaries, Fund board chair Sixto K. Igisomar said that the board has not reached any final action on the matter, citing the need for a “debate” on the issue with the public.

Igisomar said that any cut in benefits is complicated because of the board’s fiduciary duty not to impair and diminish benefits.

The idea of reducing members’ benefits was recommended to the board last year to save the Fund from near collapse. Its actuary, Buck Consultants, also presented several other options but none has been enforced to date.

According to Igisomar, the only way to do it is to put the proposal on the ballot for people to vote on. He hinted at the “impossibility” of making the cuts happen without this process.

Igisomar cited several instances when the board was excoriated by retirees who strongly oppose any benefit cuts. He said that public education is important to make this happen.

House Speaker Eli Cabrera, (Rep.-Saipan) who was present in Friday’s deliberation, expressed his support for the Fund and asked the board for any legislation that he can introduce to help the Fund’s fiscal situation.

Although there are steps and measures being initiated at the Legislature-floating a bond, building casinos to help the Fund, and other bills proposing to give something to the Fund-Ralbovsky described all of them as non-immediate ways to save the collapsing pension program.

“We don’t have the time to wait around [for these measures],” she said.

She pointed out that the pension obligation bond proposal has a weak point and that is the credit-worthiness of the CNMI government to repay the loan. She raised the same issue with the casino proposal, saying it will take time to realize.

“When it will happen? I think the ‘re-structure liability’ is the only way to do it for now,” she added.