Being one of the many beneficiaries, I offer some thoughts and ideas to protect the mandates of the NMI Retirement Fund, i.e. the fully funding of the Fund until the very last beneficiary collects its share under the Defined Benefits Program.
A. CNMI Superior Court Order in favor of the NMI Retirement Fund at the tune of $231 million which was updated recently to $282 million judgment.
It is best for the Fund to aggressively pursue payment plan on the part of the CNMI Government ASAP. No unnecessary delays accepted! Any delays will cause the Fund moving step backwards to its fully-funding mandates. Vigorously pursue the government to finalize a payment plan though it is in the form of a Promissory Note coupled with collateral of income-producing assets.
The Fund cannot wait for the Pension Obligation Bond. A payment plan must be executed, in no time, while POB is not in-place. This will take a lot longer because it needs voters sanction during the election.
Once the Promissory Note is in-place with income producing collateral, explore the possibility of selling the Note to venture capital that invests in structured settlements like accounts or notes receivables. I once watch an ad on TV that promotes structured settlements agreements in lieu for a lump sum payment. Explore, explore and explore this avenue to receive lump-sum payment as early as possible from the expected proceeds of the Promissory Note so that the Fund can invest such proceeds. Example: “Say” for the first year the Fund will receive $100 million then on the second year the balance of the Note.
In my opinion this is a very big step forward to prepare the fully-funding mandates of the Fund for its current and future beneficiaries.
B. Adopt a Tactical Investment approach to minimize losses in times of market turmoil.
In the history of the Fund investments, from the year 1985 up to the year 2006, the Fund suffered investment losses four times as follows:
Year Investment Losses
1988 $ 2,234,221
1994 $ 2,855,012
2001 $82,555,191
2002 $21,079,068
Note: Investment Losses for 2008 and 2009, I don’t have any exact figures, during these two years the world-wide stock markets declined in value.
What is this all mean now?
Ideas: 1. Explore to insure the Fund’s portfolio against market losses as what happen in the past. Perhaps, one may ask: “is there an available portfolio insurance coverage for such kind?” I believe so. Explore, explore and explore this idea! In reality, the Fund could not afford to lose in that magnitude and it must be prevented or controlled. Example: We insure our house against perils like fires and earthquakes for a premium. We have life insurance to protect our family if sudden death occurs. Why not explore protection for the Fund investments? Is it worth paying $1 million in premium for a $10 million protection or at $2 million premium for $20 million insurance coverage? These are just some ideas that come to mind. Seriously, explore some sort of insurance of the Fund’s portfolio if such devastating stock markets occur.
2. Is it time to explore the possibility of considering the Options Market to protect the Fund’s portfolio? WE have seen this happening and being practiced in the investment field to protect and minimize investment losses. As an example, the legendary Bill Ackman shorted the MBIA and made $1 billion to its stockholders’ during the sub-prime mortgage meltdown. With the same scope, Goldman Sachs bet against CDOs (Collateralized Debt Obligations) during the same period.
Let’s consult with the Fund’s Financial Consultant to explain this in more detail. The idea for bringing this issue is that, the Fund should seek to protect its portfolio in times of devastating market declines. The Fund cannot afford to lose in the magnitude of the million dollars given its current dire financial condition.
Bottom Line: As one of the current Fund beneficiaries, the challenges faced by the Fund to fulfill its mandates is very critical, i.e. FULLY FUNDING MANDATES. There is one idea from the Actuary to reduce benefits; this should not even be considered and entertained. Why? Benefits are PROTECTED under the Constitution; it shall not be diminished or impaired! In fact, the beneficiaries did not create this problem why the Fund is in deep trouble financially. Should the government PAID it’s due every payday and remitted such contributions to the Fund; it should not be like this today. It is UNFAIR to punish the beneficiaries that fulfilled their contributions faithfully and then later on reduce their accrued benefits of which they are not at fault at all. Who’s at fault shall pay the consequence and not the other way around.
I do hope that this may add idea in addressing the survival of the Fund during these difficult economic times.
NOEL M. SORIA
Former Comptroller
Virginia Beach, Virginia
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