Suspension of early retirement bill sought

The NMI Retirement Fund is urging the Legislature to suspend action on the early retirement bill now pending in the House of Representatives, saying it will accelerate the growth of future payouts to members and will eventually kill the pension agency that much sooner.

Fund administrator Richard Villagomez said that the agency strongly opposes House Bill 17-204, which, if enacted into law, will continue to allow Class I members the option to pay in the difference between Class I and Class II to retire with Class II “like” benefits.

In his letter to Rep. Sylvestre Iguel, chairman of the House Health and Welfare Committee, Villagomez disclosed that benefit payouts totaled $53 million last fiscal year 2011 and if this continues, the Fund’s assets will be completely depleted in less than three years.

HB 17-204, he said, is expected to result in a significant increase in the number of withdrawals and refunds from the agency.

Villagomez said that when the Fund is no longer able to pay benefits, it is projected that the Legislature will need to appropriate about $80 million from the annual budget just to pay for current benefit obligations. This amount is projected to increase to $100 million around 2025 before it begins to decline, assuming that there’s no new money that comes in to the Fund.

“If the Fund withdraws less than $53 million, the Fund might be able to sustain benefit payouts longer into the future, all other factors [being] held constant,” he explained.

Villagomez said that Public Law 6-17, which was enacted in 1989, was a reform measure that created the Fund based on actuarial sound principals. A key factor in this reform was the closing of Class II membership and establishment of the Class I membership. Class II membership was determined as “too generous in benefits and unsustainable” while Class I membership offers more conservative benefits. This law set the retirement age at 62 and reduced benefits for each year below that age, among other things.

Meantime, Public Law 15-70, allows Class I members the option to retire early below the age of 62 without a reduction in benefits. This option, according to Villagomez, although temporary, basically allows Class I members to retire with Class II “like” benefits, which is contrary to P.L. 6-17. HB 17-204 proposes to make this option permanent, “which is the exact opposite of reform toward securing some level of benefits for all.”

For Villagomez, the bill is unfair because some Class I members will be able to avail of the early retirement option provided by P.L. 15-70 while others will not. He cited the same case with House Bill 17-226, which allows members to withdraw their contributions from the pension agency without severance of employment or penalties.

“How are we going to fund the benefits of current retirees and new retirees after the Fund runs out of money in less than three years?” asked Villagomez, adding that due to the financial emergency situation of the Fund and retirees, he recommended that early retirement be suspended in its entirety until there is sufficient money to support its reactivation.

As of Dec. 27, 2011 the Fund’s portfolio had an estimated value of only $256.7 million.