04 Jun 2012
- By Alexie Villegas Zotomayor with Emmanuel T. Erediano - Variety News Staff
ABOLISHING the Retirement Fund board and placing the pension agency under the Department Finance will not fix the problem because it is the entire commonwealth that is in state of emergency, according to Fund Administrator Richard S. Villagomez.
The proposed move “can do little other than further impair the members’ future benefits.”He said the Fund’s problem is not structural but financial.
“The idea of changing an entity’s legal structure as being the solution to a problem is the same story over again, and it doesn’t work unless the problem itself is structural. If the problem is financial as in the Fund’s case, however, you can change the legal structure to whatever you want but it won’t fix the problem,” he said.
He said dissolution of the board and transfer to Finance “is little more than a distraction to take the focus off of the real problem: the commonwealth itself is insolvent — bankrupt.”
He said the operation of the Fund is not just about cutting checks. “I’ve managed the day-to-day operations of the Fund. It is a complex system that requires a full-time operation.”
Cutting checks, he said, is just a fraction of what they do, but the task itself requires attention to details.
In managing the payment of millions of dollars, Villagomez said, “you must have a check-and-balance systems in place to maximize accuracy, and minimize risks.”
The Fund, he added, also deals with the administrative appeals process for its members.
“We process their file in accordance with the law to ensure their benefits are documented. When that person’s term is up and they want to re-retire to receive their pension it requires a thorough review by several people and areas of the Fund,” said Villagomez.
“Who would process the necessary documents if the only person left at the Fund is the one processing checks? Who will maintain the accounting ledgers, process retirement applications, survivors’ benefits, refunds, audit the files to ensure beneficiaries are getting what they are entitled too? What will happen to the members’ rights to an administrative appeals process and who will hear these cases? Who would provide the legal advice and take legal action to protect the trust?”
Villagomez said the Fund has been operating on a skeletal crew for several years now to minimize operational costs.
“We’ve managed to maintain personnel who are dedicated professionals committed to continue providing services directly benefiting our members,” he said.
“Very few people want to work at the Fund because the pressure is high and constant every day,” he said.
Investing the Fund’s assets is another difficult function that requires an investment consultant.
“You need a highly qualified firm to provide advice on how and where is it most appropriate to invest tens of millions of dollars,” Villagomez said.
“You need a highly qualified actuary to audit and document the obligations to members and determine the amount of money needed to meet current and future obligations. It takes a whole team that is dedicated to manage the parts of the Fund and that team must be maintained for operations to function.”
Villagomez said the looming seizure of the Fund by its largest debtor — the CNMI government — “cannot even pass muster under basic trust law, I am told.”
If the Fund is placed under Finance, he added, the CNMI government may tap into the agency’s funds to pay obligations other than the payment of retirement benefits.
“Having the Fund’s assets under the control of the entity that owes it the most money and is responsible for remitting contributions is analogous to the ‘fox guarding the henhouse,’ ” said Villagomez.
He reiterated the Fund’s position that “assets should absolutely not be used for any other purpose than to pay benefits and related costs.”
He said he is “very tired of people giving false hope to the members of the Fund.”
He added, “There are lots of ideas out there to help the Fund. Most of the ideas require a change in the law or Constitution but most of all a change in attitude of those who are in positions of authority.”
Majority of the ideas proposed by the Fund, he said, were met with resistance at every turn.
Faris said the CNMI government’s treatment of its pension agency was “shameful.”
It’s constitutional for the CNMI government to place the pension agency under the Department of Finance, according to local attorney Michael Dotts.
He said although the NCMI Constitution guarantees a retirement system, it does not establish the Retirement Fund itself and administering the retirement system is a function of the executive branch of government.
“So it would be constitutional if the retirement system is moved to the Department of Finance to administer under the executive branch, provided that the manner of moving the functions over is done constitutionally either through new legislation or possibly by executive order,” Dotts told Variety.
He said the enabling legislation could ensure that the money the department receives from the pension agency is kept separate and not mingled with other CNMI assets.
Without such legislation, Dotts said Finance would be relatively free to choose what it wants to do with the money received from the Fund.
“Finance could likely use the Fund’s money for other government purposes but when the money runs out, the department would still have to write all the benefit checks for the full amount of the benefits owed,” he said.
He said under a “true” state of emergency declaration, the governor could use all the money the CNMI has to address the emergency. However, Dotts added, true states of emergency are only limited: “Basically invasions, natural disasters, and civil unrest count as the emergencies that allow for declaring a state of emergency.”
He said the law can include “other calamities” as emergencies to broaden the scope of the governor’s power, but the Legislature can also ensure through legislation that the money received by the executive branch from the Fund “is not used to prop up failing parts of the government based on a claim of ‘state of emergency.’ ”
He added, “The specifics of the executive order that is drafted or the legislation that is written to move the retirement system under the Department of Finance, if that is what is what is going to happen, are going to be extremely important in setting up how the retirement system will move forward from here.”
Now is the best time to consider cutting rebates — which means increasing the income tax rate — to extend the pension agency’s life for at least two years, according to House Minority Leader Joseph P. Deleon Guerrero.
In an interview yesterday, Guerrero, R-Saipan, said he is urging the House Ways and Means Committee to act on House Bill 17-217 which he introduced last year to cut the rebate rate by 20 percent.
The government owes the Fund over $300 million.
Deleon Guerrero said his bill can be a short-term solution to the Fund’s woes. He also favors floating a pension obligation bond — a proposal that was rejected by CNMI voters in 2010.
If it becomes law, H.B. 17-217 will reduce from 90 to 70 percent the rebate of those with a rebate base of not over $20,000.
For those with a rebate base of over $20,000, the rebate will be reduced from $18,000 plus 70 percent to $14,000 plus 50 percent.
For those with a rebate base of over $100,000, the rebate will be cut from $74,000 plus 50 percent to $54,000 plus 30 percent.
In a separate interview, Ways and Means Chairman Ramon S. Basa, Covenant-Saipan, said he does not support any tax hike.
What the CNMI needs to do instead, he added, is stimulate the depressed economy.
“You don’t stimulate the economy by taking money away from taxpayers. You should find a way to help them earn more money,” Basa said.
Taking that money away from them will adversely affect businesses sand will create unemployment and result to less revenue for the government.
The commonwealth government has to pay its obligation to the Retirement Fund, Tinian Mayor Ramon M. Dela Cruz told Variety.
“I hope Governor Fitial can find ways to pay it,” he added.
Dela Cruz cited the actuarial study commissioned by the Fund, indicating that the agency Fund may last until July 2014.
“It should be common knowledge to everyone. If you have a debt and you don’t pay it, it is going to balloon to the point that the balloon is going to explode in your face,” he added.
The government’s nonpayment of contributions to the Fund started in 1999 and resulted in the 2009 court judgment of $231 million that was subsequently updated to $325 million inclusive of interest.
If the administration can’t pay the full amount it owes the Fund, “at least, pay a portion at a time to gradually retire that obligation.”
As for the employees seeking to withdraw their contributions, the Tinian mayor said “they have every right to demand their money back.”
“How can you continue to expect the active members to pump in money into a sinking ship? It is unfair,” he said.
The bottom-line, he added, is that the CNMI government has to be forced to pay its obligation to the Fund.