In her presentation, Fund legal counsel Carolyn Kern said in the past any member of the Fund who would withdraw his employee contributions got 3.5 percent interest.
“That has been the case for quite a few years,” she said.
For Kern, that was perceived as a modest interest rate at a time when Fund investments were earning 15 and 19 percent and some people complained that it was too low.
“Now we have the reverse situation and we are moving out of investments. We think we’ll probably get less than 1 percent with our CD’s [certificates of deposits],” she said.
The proposal is supposed to take effect this fiscal year.
Trustee Adelina Roberto opined that it should not be more than the prevailing interest rate of the bank. She said the Fund could not be paying 3.5 percent interest if it is earning only 1 percent interest.
Moreover, a proposal was offered to keep the interest at zero, to which Kern disagreed.
“I would discourage that. When an employee comes in, it’s mandatory that they put their money in. We don’t want to hold their money while they’re working…without interest.”
Commonwealth Retirement Association Chairman Lorenzo L.G. Cabrera suggested following the bank’s prime rate.
Fund Administrator Richard Villagomez said the prime rate in the U.S. was 3.25 percent.
For trustee Roberto, in as much as it is compulsory that the members join the Fund, “It’s unfair too that we have to give them more than what we’re getting. Where are we going to get the money?”
In the case of refunds, the Fund is mandated to issue the money within 90 days.
A member who decides to take early retirement after June 14, 2012 will be getting reduced pension.
During the Fund board meeting last week, it was discussed that every member who has 10 years in vesting service or is 52 when he takes an early retirement will receive a reduced pension of 3 percent for every year that he or she is under 62 on the date of retirement.
This provision kept changing over the years.
“The younger they were, the smaller their pension would get because they will get pension longer,” Kern said.
She told the trustees, “It was possible for an early retiree to avoid having an early retirement pension and receive a full pension as they would at 62 by making a payment in. That payment was the actuarially determined amount but not to exceed the difference between Class I and Class II rates.”
She said anyone can retire early before June 14, 2012 and still get full pension provided they paid the 2 percent.
She also said it can’t be paid after one has already retired.
But the Legislature, Kern said, inserted a five-year transitional provision that ends on June 14, 2012 — after which you can no longer take an early retirement and receive a full pension by paying something in.
Kern said, “Regs are a little bit unclear.”
She said that loophole in the regulations is closing next year and the Fund will no longer accept payment from early retirees so they could get a full pension.
Only Class I members with 10 years or 25 years vesting service are eligible for early retirement.
According to the Fund annual audit report for FY 2010, the benefit for early retirees is the same as for normal retirement but not to exceed $6,000 provided the member pays a contribution set by the Fund but not more than the contribution required of Class II members.
Clearing of an OPA finding
The Fund board also adopted as a policy last week that any Retirement Fund money deposited in the CNMI must be in banks insured under Federal Deposit Insurance Corp.
Should the deposits exceed the FDIC limits, the Fund should have been apprised by the bank on a quarterly basis that they have sufficient collateral to cover the Fund’s money.
Should the bank fail to cover for the funds, the administrator can pull out the amount uncovered by insurance or collateral by the bank.
With the Fund board adopting the resolution as a policy, the finding would now be stricken off the OPA tracking record, according to Fund Deputy Administrator Esther Ada.
