Kern told Variety, “Although the Superior Court did not grant the Fund’s emergency request for a temporary restraining order suspending the application of P.L. 17-51, it has not yet ruled on whether the law is constitutional and the Fund will continue to seek to have the law struck down as unconstitutional.”
“We found the court’s ruling a bit surprising, as it is customary for a court to grant a TRO to maintain the status quo while an issue is fully litigated,” said Kern.
She added that the whole purpose of a TRO is to prevent harm while a challenge is considered by the court, but in this case, the court found the harm to the beneficiaries in not being able to file lawsuits under the new law in the next few months outweighed any harm to the Fund from allowing the law to remain in effect pending a full hearing on its constitutionality.
She said, “With all due respect to the court, we just can’t see that this outcome is the correct one. It’s like saying the parties that want to bulldoze the trees will be more harmed by being temporarily prevented from doing so than the party whose trees will be wiped out will be, and that until the trees are completely gone, you haven’t shown any harm — after all, you can just plant new trees.”
While preparing for the hearing on the constitutionality of the law, the Fund in the interim continues to seek a political solution to the problem by requesting repeal of P.L. 17-51 by the CNMI Legislature.
Kern also said they were instructed by Superior Court Associate Judge Kenneth Govendo to work with attorney Michael Dotts — counsel to the three retirees who sued Merrill Lynch — and whom the Fund said takes credit for being the author of P.L. 17-51, to devise amendments to the law that, while preserving Defined Benefit Plan members’ additional rights to bring suit, will not impair existing contracts and prevent service providers from being willing to enter into new contracts.
Kern said these amendments to P.L. 17-51 would then be presented to the Legislature for their consideration and possible adoption.
“Until such time as the law is repealed, changed or struck down, the Fund will comply with its requirements,” said Kern.
As it complies with the requirements, the Fund found it unfortunate that its assets have to be removed from the market until a replacement for its investment consultant Wilshire Associates has been hired.
Last Friday, Fund Administrator Richard Villagomez told Variety, “The fund has been placed in extreme situation of not having an investment consultant due to PL 17-51 and forced to adopt an ultra-conservative allocation — cash — until the Fund obtains the services of an investment consultant.
The Fund board decided on Oct. 13 during an emergency meeting to liquidate their assets into cash.
In the absence of the investment consultant, the Fund will place approximately $265 million in financial institutions that are affiliated with CDARS or Certificate of Deposit Account Registry Service that guarantees FDIC insurance for up to $250,000 in deposits.
This exit plan was devised in consultation with Wilshire prior to the expiration of its contract.
The Fund has already begun the process of moving its assets to low risk, lower return investments while it transitions the assets to cash and cash equivalents.
The Fund continues to express its concern with P.L. 17-51 chasing its service providers away.
It lost its ability to contract with an auditor that withdrew due to P.L. 17-51 and the unforeseen liabilities that come with it.
The Fund had issued another request for proposal. The Fund stated in a release “that some reputable firm, somewhere, will be willing to undertake the necessary work on behalf of the Board of Trustees to allow the Fund to meet the deadline for inclusion of the Fund’s financial report in the CNMI Government’s single audit.”
“If the Fund is unable to retain the required services, and receives a qualified audit report as a result, the CNMI Government will not be able to have an unqualified audit report,” the release further stated.
Villagomez said, “The damage the Beneficiary Derivative Lawsuit Act has caused is obviously real. The CRA and retirees should encourage their legislators to repeal P.L. 17-51 immediately.”
He also said that the retirees should also demand solutions from the CNMI government on how to pay for what it owes them in pension benefits.
Faced with dwindling assets that will soon breach the $260 million mark, with an obligation of $63 million a year, the Fund will keep its assets in cash pending the selection of an investment consultant who may propose a new investment strategy.
