In a report furnished by Fund comptroller David S. Demapan, the total receivables due from the central government stood at $242.6 million as of Feb. 28.
This did not include the receivables from autonomous agencies.
The Superior Court ruled in June 2009 that the government owed the Fund over $231 million in unpaid employer’s contributions. This increased to over $317 million as of Nov. 2010.
Based on Demapan’s report, during the five months ending Feb. 28, the total receivables from the government increased by $3.5 million from its $239.1 million level in the beginning of the current fiscal year.
His report stated that the Fund is operating on actual revenue that is behind 15 percent from the revenue estimates.
“The 15 percent deviation from the revenue estimates is mainly contributed from the CNMI government unremitted employer contributions. On the other hand, we continue to control and monitor the operating expenditures,” stated Demapan in his report submitted to the board.
He said the Fund spent $31.9 million for operation which was budgeted for $35.1 million resulting in a $3.2 million savings.
The Fund’s operation had an estimated budget of $78.6 million in 2010 and $84 million for the current fiscal year. It submitted a budget for $88 million in FY 2012.
The Fund said the central government’s failure to remit employer contributions is detrimental to the survival of the pension system.
In a letter to Lt. Gov. Eloy S. Inos last January, Villagomez sought $4.78 million in unremitted contributions dating from Aug. 31, 2010 up to Jan. 3, 2011.
“The effect of not receiving these contributions in the short term is to increase drawdowns from the Fund’s portfolio to cover larger funding shortfalls. The effect in the long term, if this trend in addition to deficient contributions persists year after year is assets will be depleted sooner by approximately 1.2 years based on preliminary projections of our investment consultant Wilshire and Associates,” Villagomez told Inos.
He said the Fund’s funded ratio may drop to zero within six to seven years, assuming moderate returns on investment, as opposed to eight to nine years as previously stated.
In the event of lower than expected returns or if the portfolio suffers a loss, Villagomez said funded assets will be depleted much sooner “if the status quo continues.”
He said, “We realize six years may seem far into the future…considering the Fund’s severe condition…70 percent underfunded. We must continue to emphasize the urgency of the situation intensifies each day appropriated contribution amounts are not received and necessary benefit reforms towards stabilizing the system are not implemented.”
Demapan reported that as of April 8, total past due employer contributions from the government amounted to $5.7 million.
He said the Fund had yet to collect $33.9 million from the agencies as of Feb. 28. This was a $2.4 million increase from the $31.5 million in the beginning of the fiscal year.
During the Fund board meeting last week, Villagomez said PSS and Finance owed over $500,000. He said Finance has yet to replenish the judicial building fund which pursuant to the loan agreement with the judiciary and the central government, must have three months of reserve or $354,000. PSS, for its part, had yet to settle six months of rental and $63,000 in unpaid utilities.
‘Working with the Fund’
Asked for comment, Press Secretary Angel A. Demapan said: “The administration has been working with the Fund and continues to engage in negotiations regarding payment arrangements. Obviously, the central government does not have the ability to come up with the $240 million all at once, but the administration has taken major strides in good faith to address the situation. The most notable being a $10 million line-item appropriation in the governor’s submission of the FY 2012 proposed budget.”
Demapan said through this system of a line-item appropriation, the Fund would stand to receive payments greater than if it were to be calculated by way of percentage of payroll, given the decrease in payroll dollars in the midst of the ongoing austerity.
Demapan said the administration is committed to continue working with the Fund to further address this issue.
Investment drawdowns
According to a report for the last five months ending February, the Fund board approved $54.2 million in drawdowns. As of April 19, Fund comptroller David S. Demapan said the agency had withdrawn $29.7 million with $24.4 left to withdraw.
“For the past 13 drawdown requests, we have been averaging $2.3 million per request and translate to $55 million annually. Thus, we expect to exceed the $54.2 million drawdown authorization by $800,000 by the end of the fiscal year,” he added.
Villagomez told the board that the anticipated deficit and drawdowns may decrease depending on the cash that the Fund will receive until the end of the current fiscal year.
The Fund comptroller also reported to the board that the market value of the investment accounts was $327.2 million as of Feb. 28 with a net increase of $33 million return on investments.
He said compared to the same period last fiscal year, the Fund’s $23 million growth in investment or 229 percent was largely due to realized and unrealized gains and losses from the sale of the securities and market contractions.
He also said the Fund earned $11.9 million in net income in the last five months ending Feb. 28.
His report indicated that the Statement of Excess Accumulated Plan Benefits Over Plan Net Assets Available for Benefits showed a 64 percent unfunded liability while only 36 percent can be funded from the net assets of $348.6 million.
