Dotts represents the group of retirees suing the Fund, its board of trustees and investment consultant Meryll Lynch Pierce Fenner & Smith, Inc.
He joined his clients in the gallery of the House of Representatives to oppose a measure repealing the recently enacted law that allows retirees to sue on behalf of the Fund.
House Floor Leader George N. Camacho, Ind.-Saipan, introduced House Bill 17-220 which will repeal Public Law 17-51.
Gov. Benigno R. Fitial and the Fund officials want the law repealed because the Fund’s service providers have resigned one after the other. Without these investment consultants and money managers, the trustees believe the retirees’ money are at risk.
Dotts said the number of money managers the Fund wants to have was necessary many years ago but not today.
Back then, the retirement program, he said, was intended to last for many years to pay benefits to retirees so it really needed the best advice the Fund could get from as many as managers as possible.
But something terribly wrong happened in 2003, he added, which did not come to the knowledge of the retirees until 2008.
Retirees Mariano Taitano, Roman T. Tudela and Patricia Guerrero in their joint complaint said Meryll Lynch in 2003 gave the Fund bad advice when it told the board to invest 75 percent of the agency’s funds in stocks, knowing that the Fund was no longer receiving employer contribution from the CNMI government on a regular basis.
Taitano, Tudela and Guerrero also said Merrill Lynch “failed to develop and recommend proper investment strategies for the Fund that appropriately responded to the Fund’s circumstances in and after 2007.”
They said the consultant “who reaped abundant commissions” also “failed to develop prudent and appropriate strategies to preserve Fund assets, prolong the life of the Fund, and provide for pension income to retirees and refunds to employees.”
In developing its investment strategies, Merrill Lynch, the plaintiffs said, “concentrated on upside potential returns, and negligently projected that future returns would mirror average returns obtained at times in the past.”
Merrill Lynch, they added, also “negligently failed to appropriately consider downside risks and the effects of interim volatility, negligently failed to accurately measure the risks of circumstances that could cause the Fund to deplete its assets or be permanently impaired and unable to become fully funded and self-sustaining and negligently failed to develop strategies and recommendations that properly considered, managed, and mitigated risks.”
Merrill Lynch, moreover, “negligently failed to recommend and implement appropriate risk management techniques, including failing to recommend that the board adjust the Fund’s asset allocations and a reduction in exposure to investments in volatile assets in the Integrated Policy Statement, and also in its other dealings with the board.”
All this “put the CNMI retirees at great risk. The retirees’ money that should last long was put in the stocks that can go down in value very quickly, considering that at the time the investment was made, the CNMI government already stopped making contributions.”
According to the plaintiffs, “It was extremely important for the adviser to the Fund in 2003 to advise its board to go into a conservative stance to protect the Fund’s assets. That means the proper advice in 2003 should have been to invest only 40 percent or even less in stocks, and not 75 percent.”
P.L. 17-51, Dotts said gives the retirees a chance to go after Meryll Lynch.
Without this law, he added, retirees will “lose the opportunity to protect the money they earned so hard during the times they served the CNMI people.”
