The Fund is endorsing the “line-item appropriation methodology” in calculating how much it will pay for the pension.
Currently, the Fund allocates the employer’s share of contributions for the Defined Benefit Plan or DBP based on “percentage of covered payroll.”
Government employees hired before 2007 are all vested in DBP, which are divided into two subgroups. The government’s actuarial rate contribution for this plan was pegged at over 39 percent of the payroll collected.
All new hires were automatically vested in the Defined Contribution Plan or DCP since 2007. The government’s contribution for this plan is just 4 percent.
According to the Fund, the current method will eventually be unworkable “because it will result in an uneven distribution of amounts required to fund the DB plan among departments, agencies, municipalities and instrumentalities of the CNMI government.”
“The costs could potentially be concentrated in just a few agencies and the amounts might be beyond what those agencies can handle financially, with the employer contribution percentage eventually rising to over 100 percent of the covered payroll,” the Fund wrote to lawmakers.
The Fund, which is currently chaired by Sixto Igisomar who is also the acting commerce secretary, said Buck Consultants, its actuary, suggested that changing the method of allocating the required employer contribution from a percentage of covered payroll to appropriation of a stated dollar amount would be appropriate in its case.
“The Fund is recommending that the allocation be proportionate to each entity’s share of the total CNMI government budgeted payroll. According to Buck Consultants, this would be an acceptable method of allocation because it spreads the cost of funding the DB plan across the entire CNMI government in proportion to a related expense — the payroll,” it said.
Four ideal scenarios were presented to the local trial court to settle the central government’s $317 million unpaid contributions to the Fund.
One scenario will require the central government to appropriate $30.8 million from the general fund, which the Fitial administration said may not be possible in fiscal year 2012 given the islands’ dire economic situation.
The Fund said the ideal way is to enact House Bill 17-99, which will mandate a yearly actuarial amount to pay the pension agency.
In the Fund’s analysis, the total employer contribution for the DB plan in FY 2012 will be over $59 million and may not require the agency to withdraw funds from its investment to pay pensions.
The share of each government entity is computed based on their number of employees.
The Public School System, which has approximately over 1,000 full-time-employees, will pay the most at 22.9 percent or over $13.672 million.
In another scenario, a $15 million drawdown will be needed but the government’s contributions will be reduced to over $51 million.
