Kenan Knieriem, first vice president and account executive in-charge of Merrill Lynch’s Institutional Advisory Division, reported to the Saipan Chamber of Commerce that from a high of $474 million in 2007, the Fund’s investment portfolio is currently down to $330 million.
He said the situation is further worsened by the CNMI government’s failure to timely remit contributions to the Fund, which since 2006 had forced the agency to tap into its investment portfolio to cover the shortfall on its estimated over $5 million monthly pension disbursement to retired public servants.
Greg Cruz Jr., president of Taotao Tano, noted that Merrill Lynch itself is facing financial troubles but was bailed out by the Bank of America.
As the principal investment consultant of the Fund, Merrill Lynch, should have suggested prudent financial strategies to the agency to save it from further incurring losses, Cruz said.
He said the board is equally at fault because it is the decision-making body of the agency.
“Who is responsible for such gross negligence and mismanagement of one’s contributions towards their future and pension? In our view, it is the board of trustees that is ultimately responsible and accountable, including Merrill Lynch,” Cruz wrote to lawmakers.
“The board is the decision-making body of the Retirement Fund and we believe that Mr. Juan Pan Guerrero and his fellow board members have a lot of explaining to do…. Merrill Lynch, which lost our investments in the stock markets is not being held accountable and responsible but is now opting to reduce retirees’ pensions in order to recover their mistakes and incompetence,” he added.
Variety tried but failed to get a comment from Guerrero.
Cruz told the Legislature an oversight hearing is necessary at this point.
“The entire board of trustees and Merrill Lynch should be investigated immediately to include the Retirement Fund consultants and comptrollers as to why and how this whole mess came about,” he said.
He noted that the CNMI’s Constitution prohibits the Fund from diminishing the benefits of retirees.
A legislative initiative is being pushed to allow the CNMI government to issue pension obligation bonds to bridge the Fund’s financial woes.
Under the administration’s plan, the pension bond, which was originally proposed at $200 million, would be invested and its compounded interest over time is envisioned to help the Retirement Fund reach its goal of pooling an asset worth $1 billion by 2045.
The cash-strapped government hasn’t been able to remit payments to the Fund. As of Sept. 30, 2007, its arrears had reached over $132 million.
The figure does not include the unfunded liabilities of over $500 million.
The Retirement Fund said these arrears could have been invested in the international stock markets and other equities had the government paid them on time.
