Rep. Heinz Hofschneider, R-Saipan, said the Retirement Fund is in a state of “technical bankruptcy” and if nothing is done to stop its financial bleeding a scary future awaits retirees and their families in the CNMI.
House Bill 16-201, or the Government Service Severance Package of 2008, will allow the cash-strapped government to buy out two years worth of service of employees with 18 years or more of vested interest in the local pension program.
Hofschneider said about 300 government employees are now eligible to retire but will not be permitted to do so until the government pays its full contribution to the Fund.
The government allows early retirement among workers with at least 20 years of service.
Hofschneider said his bill aims to reduce the size of the government and provide a one-time bailout of government obligations to the Fund so it can retire eligible employees.
H.B. 16-201 will allow employees with 20 or more years of service to retire. Those with 18 or more years of service will be given the equivalent of up to two years to earn retirement for early termination of their service to the government.
The severance package will depend on the employee’s annual income.
Those earning over $40,000 per year will be given the cash equivalent of up to one year of service not to exceed that amount.
Employees earning less than $40,000 a year will be given the cash equivalent of up to two years service not to exceed $40,000 a year.
Attrition
Hofschneider said the idea is for the commonwealth government to pay in full each employee’s employer contribution and each one’s share will be taken out from their severance pay.
“Attrition through retirement is one method by which the commonwealth government can reduce its size and budget requirement but this option is not available to government employees as long as the government contribution has not been paid to the Retirement Fund,” the lawmaker said.
“Based on current financial figures, the commonwealth government is barely making payroll and vendor payments, and will not be in a position to continue operating at its current level for long, which will lead inevitably to terminations, thereby, putting some long-term government employees at risk of losing their jobs,” he added.
Hofschneider said an early retirement program with a severance package is a better option than mass layoffs.
Shrinking assets
As of Oct. 2007, the Retirement Fund had assets of about $470 million.
With the nation in recession and the global economy in turmoil, this figure is down this month to $310 million, said Hofschneider.
He said the Fund was forced to sell its shares of stocks worth $45 million last year alone to address the shortfall on pension payments.
With its assets reduced to just over $310 million and with the constant threat of further withdrawals for the pension payments, the Fund’s lifespan is projected to be cut short in about three years.
Hofschneider said floating a $250 million pension obligation bond will be wise, but brokers also need assurance that the CNMI can make annual payments of at least $5 million.
The proceeds from the $250 million bond will be reinvested under his plan.
Hofschneider said if the government can retire a significant number of its employees, the CNMI can easily raise enough funds to pay the bond.
The Retirement Fund pays about $70 million annually for the annuities of more than 2,700 retirees and their dependents.
