“THERE is a dispute with the Public School System regarding employer contributions and employee withholdings due from 23 class members,” NMI Settlement Fund Trustee Joyce CH Tang said in her status report to the District Court for the NMI dated Oct. 18, 2023.
PSS, however, stated that there is no dispute regarding employer contributions, but there is a “difference of opinion” about the lump sum retention bonus contributions of its active defined benefit members.
PSS said the “bonus” is actually a “retention incentive.”
In June 2021, Dec. 2021, and Nov. 2022, PSS paid “retention incentive bonuses” to 23 class members totaling $332,789.86, Tang said.
“This was an average of $14,469 bonus paid per class member. The employee’s (member) portion owed is $35,124.22, and the employer contributions owed to the Settlement Fund is $124,433.12, for a total of $159,557.34,” she added.
According to the trustee, PSS’s stated position is that it is not required to withhold nor is it required to pay employer contributions for the bonuses because 1 CMC § 8313(o) excludes “any kind of bonus salary” from the definition of “salary,” so these bonuses are excluded from computing ER contributions.
Tang said “[n]otwithstanding PSS’ stated position regarding the bonus payment, PSS issued W-2s to the 23 class members who received bonuses and included the ‘retention incentive bonus’ amounts in Box 1 of the W-2 tax form where the amount of ‘gross wages’ paid to the employee is indicated.”
The Settlement Fund disagrees with PSS, Tang added.
“Bonus income, however it is characterized, is taxable gross income under the Internal Revenue Code and bonuses, by definition, are included in the calculation of gross income under the IRC.5. The CNMI tax code mirrors the IRC,” she said.
Tang said the Settlement Agreement, which the District Court of the NMI has the authority to enforce, mandates that “[a]fter Final Approval…the CNMI and Autonomous Agencies shall make supplemental payments to the Settlement Fund in the amount of the employee contributions for these Settlement Class Members at the same contribution rates they were paying as of June 26, 2013.”
She said this requirement is also consistent with 1 CMC § 8362(b), which requires autonomous agencies to “contribute a similar amount as the government contribution rate of the gross salary or wages of its active employees to the Fund on behalf of its employees.”
“Because the bonuses paid to PSS employees are taxable income, PSS must pay its requisite share of the employer contribution equal to 37.3090% of the gross income and the 23 PSS employees will need to pay the employee share,” Tang added.
PSS’s response
In a statement to Variety on Tuesday, Interim Commissioner Donna M. Flores reiterated the school district’s strict adherence to and its commitment to abiding by all government regulations and meeting its obligations.
Flores said PSS has met with Settlement Fund officials this year and initiated various communications relating to the concern raised by the Fund pertaining to the retention incentive provided to 17 active employees of PSS under the defined benefit plan.
Flores said both parties have attempted to meet again, but it was called off due to Typhoon Bolaven.
She said “PSS is and will be ready to meet” with Fund officials again.
On July 7, 2023, PSS legal counsel Tiberius D. Mocanu, in a letter, reached out to the Settlement Fund seeking clarification “on the classification of the lump sum retention incentive as a salary payment.”
PSS said under 1 CMC Section 8313 (o), “Salary means base salary paid to an employee for services including payment for annual leave, sick leave, administrative leave, holiday pay, but excluding lump sum payment, annual leave, or standby, hazardous, nighttime differential, typhoon pay differential or overtime pay, or kind of bonus salary.”
“From the statutory definition, it appears that the ‘lump sum retention bonus’ is explicitly excluded from the category of ‘salary,’ ” PSS said.
“The retention incentive is explicitly excluded from the category of salary. The lump sum retention incentive is non-recurring, not governed by any salary scale, and is not compensation for any type of leave. It is, in essence, a bonus payment. Based on this interpretation, it would seem that the lump sum retention bonus should not be subject to contributions to the [Settlement Fund],” PSS legal counsel Mocanu said in his July 7 letter to the Fund.
“We respectfully request [the Fund’s] explanation regarding the classification of the lump sum retention incentive as a salary payment, considering the statutory definition. This clarification is critical to ensuring that PSS complies with the law and upholds the principles of transparency and accountability,” Mocanu added.
On Sept. 13, 2023, he emailed an “urgent follow-up letter” to Settlement Fund Administrator Lillian Pangelinan regarding his July 7 communication.
“[G]iven the significance of this matter for both the Public School System and [the Fund], we consider it of the utmost importance to receive clarification as soon as possible. The lack of response has left us in a state of uncertainty, hindering our ability to proceed in compliance with the law and uphold the principles of transparency and accountability,” Mocanu stated in his Sept. 13 letter.
On Sept. 14, Pangelinan “acknowledged” Mocanu’s letter, and said, “We will respond in due course.”
Current
According to the trustee’s report to the District Court of the NMI, the following government agencies are relatively current in paying their employer contributions:
• Commonwealth Healthcare Corp. is current through Sept. 9, 2023.
• The CNMI government and Northern Marianas College are current through Sept. 23, 2023.
• The Commonwealth Development Authority and the Commonwealth Ports Authority are current through October 7, 2023.
As for the Commonwealth Utilities Corp., Tang said “the Settlement Fund and CUC have reached a settlement regarding CUC’s outstanding employer contribution balance of $3,469,797.”
“CUC has shared its financial statements with the Settlement Fund, and based on the financial projections, the parties agreed that CUC can afford to pay $50,000 per month until the balance is paid in full. Interest, at the rate of 5% per annum, will accrue on any late payments,” Tang said.
In an order issued on Oct. 20, 2023, Designated Judge Frances Tydingco-Gatewood approved the settlement between the Settlement Fund with CUC.
She said “the court finds that the terms of the Settlement Agreement and settlement amount of $3,469,797.00 are fair, reasonable and adequate, and in the best interest of all Settlement Class Members.”
