Pointing out the urgency of the matter, Sixto K. Isigomar, chairman of the board of trustees, said, “We really need that commitment [from the legislators] because they are the ones that appropriate the funds.”
Igisomar said the Fund needs the commitment from both the legislators and the administration.
“The CNMI pension plan is shy of 40 percent funded — that’s a huge unfunded liability, about 60 percent, and in comparison to other states, a state that’s reaching 60 percent funded, they are in trouble. Most states are in the 80s and the best ones are 100 percent funded,” said Igisomar.
He told the legislators, “We should find every way to prevent it from further losing money, prevent it from having more stress. We shouldn’t be adding more liabilities.”
He asked the lawmakers to make the retirees a priority—as high as possible.
The fund’s accrued unfunded liability stood at $591 million based on the latest valuation report by actuary Buck Consultants.
Dylan Porter, principal and actuary, Buck Consultants, reiterated to Variety what he told the lawmakers that the unfunded liability ballooned from $529 million in fiscal year 2008 to $591 million in fiscal year 2009.
Explaining to Variety how he arrived at $591 million, Porter said, “You start with all the members and calculate their forecasted benefits and decide what their expected lifetimes are, and how long people will receive their benefits and that gives you the liability number—$945 million actuarial accrued liability for this year. You subtract the assets — $353 million —$591.775 million.
Asked how much would it take to stabilize the Fund, Porter said, “There are two answers: The Fund either could count on the $12 million contributions or it could not. If it could not count on the additional $12 million a year, to make up for additional shortfall, then it needs 100 percent of its liability funded and that would be $591 million as a one-time deposit to bring it up to date.”
If the Fund could count on the $12 million in the foreseeable future, then it could pay less, the actuary said.
Porter told Variety that the Fund had $353 million of invested assets that represent stocks and bonds, invested assets in the portfolio plus 10 million receivables. “That is the cash in the Fund that they got right now,” he said.
Meanwhile, Fund administrator Richard Villagomez pointed out that the Fund could not rely on investment returns all the time.
He told lawmakers, “We can’t rely on returns forever — very unlikely, very unsustainable.”
He said $141 million in contributions had been deposited to the portfolio and the Fund had withdrawn close to $200 million in the past several years.
“The $320 million assets that we have are all from [investment] earnings, from the investment of the assets,” he said.
He also said late payment of employer contributions has negative impacts to the Fund’s finances.
He told the lawmakers, “We prefer to have more dialogue to address this problem that we all share. Nobody wants to do cuts.”
Villagomez, Igisomar, and Porter presented facts before the lawmakers on how best to stanch the Fund’s financial bleeding.
In order to better understand the situation, Porter provided the lawmakers six scenarios to consider.
First scenario involved the central government remitting $48.9 million. The second scenario with assets pegged at $328 million based on the April 2011 level, would require 50 million in employer contributions.
The third scenario provides the elimination of COLA and future disability benefits with the government coughing up $42 million in contributions.
The fourth scenario provides for 10 percent reduction in benefits across the board plus elimination of COLA and disability benefits. Employer contributions would be $35.67 million.
The fifth scenario would cut benefits by 25 percent across the board along with cuts in COLA and disability benefits with government contribution at $25.7 million.
The last scenario would cut benefits by half across the board with required government contribution at $9 million.
According to Porter’s report, the scenarios used Sept. 30, 2009 liabilities.
Porter reported that by 2024, the majority of the retirees will have exited the Fund.
In an interview with Variety, Porter explained the scenarios.
“Any time you do scenarios you have to have a known starting point. So we used the most recently completed valuation report. If we had in our possession employee data that was more current than 2009, we would use it. We do use more current assets, we used April 2011 assets.”
Porter said there are movements in assets every year. Liabilities move very little. “It is a lot safer to project those liabilities per year. It might change a little bit but not change dramatically.”
He said $62 million was paid for benefits in 2008-2009. “If we project those benefit payments every year in combination with the $12 million contribution…it is no surprise that Fund falls pretty rapidly.”
Porter told Variety that scenario five is when benefits are cut across the board by 25 percent in addition to not paying any COLA. “That will slow down our descent quite a bit.”
Variety inquired with the Buck Consultants actuary whether he had any knowledge of a pension agency in the U.S. that had a similar predicament with the Fund but cut benefits, he said, “To my knowledge none of the state retirement systems in the U.S. has faced benefits cut yet. There have been isolated cities that have gone to zero and actually had to stop making payments to retirees and beneficiaries. But the state systems have been insulated a little bit. They are not that bad yet.”
He also told Variety that he agrees that comparing 35 percent funded level with all of the states, “we are way outside the mainstream. The state systems in general are between 60 percent to 100 percent funded; 35 percent is where they might be under a worse case 10-20 years from now, and we are a lot farther down the path than they are.”
“I liked what I heard from the legislators saying back and forth today that if they could find more money to put into the plan, and then make modest cuts, they could get these two things balance each other,” he added.
Porter also said that there has to be large additional contributions to be able to make modest cuts.
“You need to find a lot of extra money to get there,” he said.
The Fund board along with the actuary discussed with the legislators yesterday on how best to address the problem.
Rep. Ramon S. Basa, Covenant-Saipan and chairman of the House Ways and Means Committee, said, “We are all stakeholders and we want this program to continue on.”
Speaker Eli D. Cabrera, R-Saipan, called for all stakeholders to work together to keep the Fund stable.
“We have to work collectively. We have to work as a team,” he said.
