By Haidee V. Eugenio
Variety Assistant Editor

THE value of the Retirement Fund’s accumulated plan benefits reached $922.2 million, which is 51 percent higher than the $449.5 million in net assets available for benefits based on the latest actuarial valuation, according to an audit conducted by independent firm J. Scott Magliari & Co. for fiscal year 2006.
“This means that if the plan ended on Sept. 30, 2006, the Fund’s net assets available would not be sufficient to pay for its accumulated benefits,” said an Oct. 11 summary of the audit report by the Office of the Public Auditor.
The most recent actuarial valuation was on Oct. 1, 2005.
In FY 2005, the Fund’s plan net assets and accumulated plan benefits were $460.1 million and $869.9 million, respectively.
In FY 2004, plan net assets and accumulated plan benefits were $399.8 million and $828.9 million, respectively.
Established in 1980, the Retirement Fund administers a defined benefit, cost-sharing multi-employer plan. It provides retirement security and other benefits to government employees, their spouses and dependents, and former governors and lieutenant governors.
On June 15, 2006, the Legislature passed a bill that became Public Law 15-13 to create a Defined Contribution Plan for all new public employees effective Jan. 1, 2007. This new retirement plan aims to improve the defined benefit plan’s fiscal solvency and reduce the Fund’s significant unfunded actuarial accrued liability.
The Fund’s plan net assets, which reflect funds available for future payments on liabilities and pensions, reached $472.7 million as of Sept. 30, 2006, an increase of $12.6 million or 2.7 percent over the previous fiscal year.
But the increase, according to OPA, is much smaller than the 15 percent jump seen in 2005.
In a five-year period, FYs 2002 through 2006, plan net assets increased by $137.4 million.
Total investments increased by $14.9 million from $433.3 million in FY 2005 to $448.2 million in FY 2006, bringing the total assets to $522.8 million. This was an increase of $18.4 million over the previous fiscal year.
The total liabilities grew by $5.8 million from $44.2 million in FY 2005 to $50.1 million in FY 2006.
The total unfunded pension liability, meanwhile, dropped by 1 percent to $547.2 million.
This is the actuarially accrued future liability of the Fund, based on estimates and assumptions calculated considering future funding needs.
“Because these figures are only estimates, there will be fluctuations in the amounts of the liability,” said OPA.
Factors used in the calculations include the longevity of members, future earnings potential of the fund, future inflation factors, average retirement age of members, future administrative costs, future survivors of members, and future turnover of non-vested government employees.
When the required contributions by the general fund are not remitted in a timely manner or are not remitted in full to cover pension contributions, the unfunded liability increases twofold.
First, potential earnings are impacted by the inability to place those contributions in long-term investments, causing a potential loss in revenues for the Fund and therefore increases liability.
Second, cash flows are strained in order to meet the Fund’s current obligations.
“When cash is tight, the Fund resorts to drawing upon its principal investments to finance shortfalls, causing a financial burden which, in turn, decreases net assets and therefore increases liability,” OPA said.
The local investment cash flow of over $4 million was used to fund this shortfall, in addition to a nearly $18 million drawdown of investments, according to OPA based on the Fund’s statement.
The CNMI Workers’ Compensation Commission – posted net assets held in trust at $1.1 million, a 6.9 percent increase over FY 2005.
Total revenues, however, dropped by 25.4 percent to $331,821.
The Group Health and Life Insurance Trust Fund, meanwhile, had a deficit balance of $17.4 million as of Sept. 30, 2006 — an increase of $5.5 million from FY 2005.