In an e-mail, Press Secretary Charles P. Reyes Jr. said the judgment vastly exceeds the CNMI government’s ability to pay.
“The judgment is close to $100 million more than our current budget,” he added.
Reyes said the administration will “continue its efforts to achieve a workable solution to a very difficult situation arising out of many years of past political financial mismanagement of the defined benefit plan.”
In a 17-page judgment, Associate Judge Kenneth L. Govendo also held that Public Law 15-15 was unconstitutional.
The law allowed the central government to suspend its employer contributions to the Retirement Fund in fiscal years 2006 and 2007.
Govendo ordered the Department of Finance to pay to the Retirement Fund an employer contribution rate of 16 percent beginning with the pay period ending in Aug. 14, 2009; 30 percent of the hotel occupancy taxes; and 20 percent of the alcohol container taxes “which shall start on Aug. 1, 2009 and shall continue until further order of the court.”
The administration has said that it can only pay an 11 percent rate.
Govendo said the damages were calculated by examining several factors, including audit confirmation letters confirming the amounts due to the Fund and acknowledged by Finance as valid, the actuarially determined employer contribution rate, budget acts, memorandum of agreement where both parties signed at the end of 2001 that the government would pay $500,000 on every other non-government payday Friday, but which the government failed to pay, and for employer contributions which showed that the government owed $158,106,671.78 in deficient employer contribution payments as of April 15, 2009.
The statutory penalty for untimely payments of employer contributions is another factor in the calculation, Govendo said.
The government first stopped paying its employer contributions on Aug. 14, 1999 and since then, payments have been sporadic, he added.
The Fund showed that the balance owed for these statutory penalties as of fiscal year 2008 was $37,475,945.51.
Other factors include the special annuity which provides for the government to make contributions each year, but the government became delinquent beginning 2001, and the government now owes $407,459.63.
The government also owes the Fund $15,026,333.01 in appropriations to pay for cost of living allowances, an increase in annuity benefits, premiums for the Group Health and Life Insurance; $3,366,060.74 for early retirement bonus of government employees; $780,732.60 for Trust Territory prior service receivable; and the amount due from the general fund which was $10,698 as of Sept. 30, 2002.
Further, Govendo said, the government owes the Fund $16,474,037 in lost opportunity costs.
He noted that the court encouraged both parties to pursue a settlement.
The Fund is opposed to any settlement.
Govendo said he expects that the decision will only be the starting point for negotiations between the two parties and the judgment will need to be updated to take into account the additional damages that have accrued since April 15, 2009.
The judge said the 16 percent employer contribution rate may be readjusted if it becomes clear that it is not sufficient to keep the Fund solvent.
The Fund said the actuarially determined rate is 36.7 percent.
The issues of interest on the judgment and the cost of suit will be taken up at a later date.
Govendo said the defendants chose to make the plaintiffs prove every bit of damages and the plaintiff produced 46 exhibits to support their claim.
The court said the defendants, through its own witnesses, have testified that the government cannot afford to pay the present 11 percent contribution rate under any circumstances, and that 1,000 government jobs would be lost if the employer contribution is raised beyond 11 percent.
Attorney Viola Alepuyo represented the Retirement Fund in this case while Assistant Attorney General Anthony Welch represented the government.
Govendo set a review hearing for Nov. 2, 2009.
In an e-mail, Alepuyo said the judgment resulted in “a great day for not just retirees, but for everyone who is a recipient of the Defined Benefit Plan.”
Alepuyo said the accusations against the Fund board of not caring about whether the CNMI government goes bankrupt “are simply untrue, unsubstantiated and unjustified.”
Alepuyo’s husband, House Floor Leader Joseph N. Camacho, is the running mate of Independent gubernatorial candidate Juan T. Guerrero, a former senator who is currently the Retirement Fund board chairman.
Alepuyo said their next move will be to communicate with executive and legislative branches.
“I’m sure that with all the great minds in the CNMI, we will be able to think outside the box in order to come up with realistic solutions to make the required payments as well as maintain critical public services,” she added.
