The bill’s intention is to help the program survive today and to continue to remain viable for the future generations of the FSM.
As of 2006, benefit payments began to eclipse tax collections.
As the FSM Social Security System is a defined benefit program, this presented a large problem.
In a defined benefit program, the current work force pays for the current benefits.
Since tax collections are the only source of funding for the FSMSSA, the administration had to find ways to create a desirable ratio between the tax it collected and the benefits for which the taxes were to be used for.
In 2006, the total amount of taxes collected was at $12,049,988.
Benefit payments, on the other hand, came in at $12,586,560.
In 2007, the difference became even more pronounced where total collections amounted to $12,783,551 while benefit payments registered at $13,663,880.
2008 saw collections ending at $14,063,254 while benefits totaled $14,241,374.
Coupled with administrative costs, Calendar Year 2006 saw a deficit of $1,504,584; Calendar Year 2007 resulted in a deficit of $1,849,358; and Calendar Year 2008 ended with a deficit of $1,171,761.
Because a defined benefit program such as the FSM Social Security System is funded solely by its tax collections, it requires a strong economy to support its benefits and expenses.
Just recently, the states of Kosrae and Chuuk laid off a large number of their employees.
With the laying off of these employees, coupled with the current stagnant economy, the FSMSSA’s tax collections are expected to take a hit that it can’t afford.
Benefit payments continue to increase by 6 to 8 percent on an annual basis while tax collections haven’t been able to keep up.
As of Jan. 1, 2006, the FSM Social Security System was only 16 percent funded with an accrued unfunded liability of $219.5 million.
This means that if the program were to stop today, only 16 percent of benefits earned up to this point would be funded by the system’s total assets and that include investments.
The $219.5 million represents the total funds the system would require to pay off all benefits already earned.
As of Dec. 3, 2007, out of the 4,876 individuals receiving benefits, 4,493 had exceeded their contributions.
This also contributes to the unfunded accrued liability.
The desirable funded ratio is 30 percent and, of course, a considerably lower unfunded accrued liability should always be strived for.
The FSM Social Security Administration has an investment portfolio that as of Dec. 31, 2007 was worth $43.3 million.
The FSMSSA has been drawing down funds from the portfolio to offset its deficits and although it is fortunate that such a store of funds is available to cover these deficits, it is not the intention of the FSMSSA to continue to do this.
On Nov. 25, 2008, due to the economic downturn and withdrawals the investment portfolio’s value was $30.04 million.
On Jan. 1, 2009, the portfolio increased to $31.8 million.
As it is a trust fund, its purposes are long term. The portfolio is not meant to be subject to such frequent drawdowns and as the market can be quite volatile at times, the FSMSSA does not wish to risk depleting it.
The administration therefore turned to amending the law to create a better ratio between its tax collections and benefit payments for the short term and to improve its funded ratio and decrease its unfunded accrued liability to ensure the long term viability of the system.
The amendments were arrived upon after intense study and numerous consultations with the FSMSSA’s actuary.
