Among the recommendations made by the Fund is moving the funding mechanism to a line item appropriation system.
Illustrating a line item appropriation funding mechanism based on budget payroll, Fund administrator Richard Villagomez, in his letter to House Speaker Eli Cabrera, author of the bill and Rafael Demapan, chairman of Judiciary and Governmental Operations, stated that the total contributions required for FY 2012 will be $58 million based on the actuary determined total employer contributions.
Of the $126.68 million in total budgeted payroll for the CNMI, $66.10 million will be for the general fund and $60.58 million for the autonomous agencies.
Broken down into departments, the budgeted payroll will be $2,934,762, judicial branch; $2,681,669, legislative branch; $45,120,729, executive branch; $5,677,593, 1st Senatorial District (Rota); $5,179,361, 2nd Senatorial District (Tinian); $1,102,434, 3rd Senatorial District (Saipan and Northern Islands); $832,531, MVA; $88,732, Board of Professional Licensing; $164,803, Civil Service Commission; $176,806, Election Commission; $96,395, Commonwealth Museum; $128,933, Joeten Kiyu Public Library; $27,476, NMIOICC; $121,061, WCC; $1,765,104, DPL.
For the autonomous agencies, the projected budgeted payroll based on the Fund’s illustration of a line-item appropriation will be $28,521,990, PSS; $137,685, PSS BOE; $758,386, CDA; $7,553,995, CPA (FY’09 budget); $10,974,347, CUC (FY’09 budget); $4,099,229, NMC; $880,459, NMC Apprentice Program (FY’09 budget); $1,110,989, NMHC; $1,353,669, NMIRF; $1,818,525, OPA; and $55,553, PUC.
Tinian Municipal (FY’06) budget was $3.3 million.
From these budgeted payrolls, $30.26 million in contributions will be coming from the central government while $27.74 million from the autonomous agencies.
The Fund made the following recommendations on the funding mechanisms.
According to Villagomez, under a transitional funding mechanism, the Fund is recommending the addition of a provision in the HB 17-226 to amend section 8362 to require employer contribution amounts shall continue to be paid by all employers based on the amount of payroll of active DBP members prior to the refunds with the contribution rate in effect of the effective date of HB 17-226. Beginning Oct. 1, the rate will be 60.8686.
As for the permanent mechanism, the Fund is recommending that the dollar amount be calculated by an actuary but the amount each employer pays can be determined by either weighted dollar average of budgeted payroll or weighted dollar average of service years.
The Fund also stated that it would be neutral on the proposed method and the choice is a policy decision of the employer.
“We are neutral on either and are most concerned with getting the contributions for benefit payments and past due contribution amounts than the funding mechanism itself,” the letter stated.
Villagomez also stated in that same letter that the new funding mechanism should be incorporated in the bill as the measure itself renders the current mechanism obsolete.
The Fund also expressed concern for the future of these active members cashing out their contributions without putting in the money in another pension plan like the DC plan.
Villagomez said with the mechanism for the active members to secure their retirement, the CNMI may be faced with a potential social problem and economic burden with hospital bills and other social welfare costs should the members retire with no sufficient financial support.
The Fund recommended that those withdrawing their funds be made to contribute at least 50 percent of their net received funds into the DCP. It also added that all active members withdrawing and still employed should automatically be enrolled in the DCP.
Other recommendations of the Fund include: An active member can only withdraw funds if they actually exit the CNMI; if left with only $175 million for retirees, the Legislature should consider a consolidation of all NMIRF sponsored bills and incorporated into HB 17-226, removing all obligations of the Fund that are not benefits (payment of premiums for health and life insurance coverage, total elimination of COLA, lump sum death benefit); bill should mandate the government responsible for all present and future deficient contributions that are due to beneficiaries currently receiving benefit and/or to those who choose to remain in the Fund and not withdraw funds.
The Fund also recommends for the bill to point out to the refunding members that he or she waives all rights in future pension including survivor’s benefits, lump sum death benefit, health or life insurance coverage for retirees.
It also asked the bill to include that a refunding member may withdraw his application for refund within 15 business days of submission upon receipt of written notice from member.
Should the member decide to pull out contributions, the bill should clarify that all credited, employment and vested service is erased for vesting and retirement purposes and all refunding members will automatically be enrolled in the DCP.
Villagomez cited as misleading section 2 of the bill where it states that a refunding member may elect to enroll in DCP. Villagomez said membership in the DCP is mandatory for government employees.
He also said allowing the DBP members withdrawing not to enroll in DCP makes the DCP lose its status as a qualified retirement plan under federal law.
There are also other conflicting provisions.
The bill does not repeal 1 CMC § 8356 (b), wrote Villagomez to Cabrera and Demapan.
This subsection’s provisions are in conflict with the provisions of the reenacted section of 8356(a): a 10 percent penalty is meted out to a Class II member withdrawing in the previous provision while the other allows both Class I and II to refund with no penalty.
1 CMC § 8356 (b) allows the board to pay refund in 30 days but Fund regulations state that the refund be paid in installments in three months.
The new provision, however, requires a 45-day refund.
The Fund suggests to fix this by repealing the existing provisions (b) and (c) and section 3 of the bill should be enacted as the new (b).
