Wilshire terminates contract with Fund

After sending feelers about its plan to sever its relationship with the NMI Retirement Fund last week, Wilshire Associates finally followed through on the threat yesterday when the investment consultant terminated its contract with the pension program.

The company said it decided to terminate its contact with the Fund because of the grave impact the newly signed Beneficiaries Derivative Act would have on its operations.

Wilshire was hired by the Fund to replace for Merrill Lynch last October and is being paid $195,000 a year.

“The newly enacted Public Law 17-51 potentially allows our existing contract terms to be voided or altered by the Fund’s beneficiaries at any time in the future and can be retroactively applied up to 12 years in the past. This has created significant uncertainties in the business contracting environment and put into question the board’s authority in contracting with outside parties,” said Wilshire in a statement.

The company adding that it finds it impossible to continue performing its duties under the current contract due to these circumstances. Wilshire has tendered its resignation effective Sept. 11. Unlike money managers who have a 30-day provision to terminate contracts, the investment consultant can terminate its service whenever it wishes to and vice versa.

The company, however, assured the Fund that it will continue to serve the agency for up to 30 days to assist in the transition.

“We sincerely appreciated the opportunity to work with the board and staff of the Fund in the past year. The Fund has been facing enormous challenges from aggressive drawdown caused by years of delinquent employer contributions and unchecked benefits granting,” said the company, adding that the board and the management have been working tirelessly trying to save the Fund.

As of Aug. 16, the fund portfolio was valued at only $271.2 million, which according to Wilshire could only last up to three years if no new money will be pumped into the pension plan.

Wilshire reiterated that in order for the Fund to be saved, a focused effort from the entire community is essential. During her recent visit to Saipan, Wilshire principal Maggie Ralbovsky communicated this view to both the Fund and the Legislature.

However, despite numerous presentations and her consistent communication on the negative effects of the then-bill, the measure was passed and enacted into law.

“While we hoped our efforts would create some positive actions, we were disappointed with the enactment of P.L. 17-51, which further endangers the fund and diverts precious resources from tasks of saving it. We were left with no other choice but to tender our resignation,” it said in the statement.

Fund administrator Richard Villagomez, when asked to comment on the formal termination of Wilshire’s contract, pointed out that this has been presented and clearly communicated with lawmakers and elected officials but to no avail.

“The negative effects of P.L. 17-51 are now obvious. Unfortunately, the bill still became law even though the effects were foreseeable,” he told Saipan Tribune yesterday.

He said the perception of outsiders wanting to do business in the CNMI-not just with the Fund-may have been severely damaged because of the said public law. Villagomez said retirees and members of the Fund need a champion in the Legislature to lead and stand strong in addressing retirement issues.

“Lawmakers should repeal this law in its entirety right away,” he added.

Villagomez earlier disclosed that the Fund may not get a replacement for Wilshire from on-island because the law that created the Fund specifically outlines the requirements and criteria of an investment consultant which must have handled at least assets totaling $200 million.

Gov. Benigno R. Fitial last Friday expressed his dismay on Lt. Gov. Eloy S. Inos’ signing of the law. He said it was not what they agreed upon before he left off-island.

Some lawmakers who opposed the measure when it was a bill, however, expressed their desire to offer amendments to the law in their next meeting. Their colleagues, meantime, were vocal in saying these amendments may not pass due to lack of votes from members.

Since the signing of the Beneficiaries Derivative Act last Monday, two money managers have already terminated its contracts with the Fund and it is expected that the remaining managers will follow suit. The Fund also expressed worry that this may also result in the termination of service of its custodian, Bank of Hawaii.