Villagomez said the bill, which Cabrera authored, will allow 2,996 active employee members to withdraw their employee contributions.
The Fund as of Aug. 31 had $278,594,044 based on an unaudited report. Should H.B. 17-226 becomes law, the Fund will be releasing about $103,288,205 in withdrawals leaving it with only $175,305,839 left to support the accrued benefits of 2,940 members.
In 2009 alone, the Fund paid out $63 million in benefits.
Villagomez said without funding support for retirees and their beneficiaries, the pension agency will “definitely run out of funds to make payments in less than three years.”
Likewise, the Fund said the bill begs a constitutional question.
The CNMI Constitution mandates that accrued benefits “shall neither be diminished or impaired.”
The intent of the bill was to eliminate future liabilities from active members; however, it does not address the current liabilities owed to retirees or those who have yet to receive benefits, the Fund said.
“As a result of systemic failures, both in overly generous benefits and grossly deficient appropriations for employer contributions, current retirees will never see the total benefit promised them by the commonwealth unless contributions from the government continue.”
Villagomez said the bill removes the funding mechanism for current contributions. Unless an alternative funding mechanism is put in place, he said the bill will diminish and impair the benefits of the retirees and their beneficiaries contrary to the constitutional protection of these benefits.
P.L. 6-17 provides for the “percentage of payroll” as the current funding mechanism.
With the creation of the defined contribution plan, or DCP, no new members were allowed in the DBP resulting in the payroll amount of active DBP members to diminish over the years.
As the percentage of payroll for members decreases, the percentage of payroll for employer contributions increases.
“The declining DBP active payroll was a big contributing factor in the recent rise in the employer contribution rates from 37.3909 percent based on the FY 2007 Actuarial Valuation report…to 60.8686 percent in the FY 2009 Actuarial Valuation report,” said Villagomez.
H.B. 17-226 renders “completely obsolete” the percentage of payroll as it allows all active DBP members to refund or convert to DCP.
Villagomez said there must be a new funding mechanism in place to continue payments to approximately 2,940 retirees and their beneficiaries and to continue upholding their constitutionally protected accrued benefits.
The Fund also requested to change the funding mechanism to a line appropriation system.
Villagomez stated that the total contributions required for FY 2012 will be $58 million based on the actuary determined total employer contributions.
The Fund believes that without a mechanism for active members to secure their future, the CNMI may potentially face a social and economic burden from increased hospital bills cost of other social welfare when the active members reach retirement with no sufficient financial support.
The Fund finds the central government and the Legislature equally culpable in the pension agency’s “compromised fiscal integrity.”
Villagomez said, “The demise of the Fund has been well documented. Let us not forget that the CNMI government, including the Legislature, over many years contributed to the compromised fiscal integrity of the Fund.”
The pension system for the defined benefit plan members — saddled with unfunded liabilities and eternally optimistic economic outlook — has been in intensive care since day one, he added.
Villagomez said it’s misleading to state that the Fund’s fiscal integrity has been compromised, as claimed by Cabrera’s bill, without explaining the cause of the compromise.
