A report from the agency obtained by Variety yesterday showed that as of Oct. 1, the Retirement Fund’s actuarial accrued liability had grown to $969.1 million while its valuation assets amounted to only $313.8 million.
This amount is projected to go down to roughly $10 million by 2018 based on the current levels of contributions to the Fund.
High levels of cash outflows are expected to continue for the next 30 years.
The Fund’s payment projection assumes 3.5 percent annual pay raises for active participants, and a COLA adjustment of 2 percent per year.
The report further said that because the Retirement Fund is closed to new participants, its investment horizon is “finite.”
The reduced number of participants will stay active but will represent smaller payroll contributions.
Assuming it pays out 10 percent per year to reduce its liability, the Retirement Fund assets need to earn 17.3 percent per year to keep the current status of having a 32 percent funded ratio.
If the Retirement Fund hopes to close the funding gap in 10 years through investing and maintaining current levels of employer/employees contributions per year, the required annual return for the next 10 years would have to be 24 percent per year.
Hypothetically, if a $230 million lump sum contribution is made today and the Funds hopes to close the funding gap in 10 years through investing and maintaining current levels of contributions per year, the required annual return for the next 10 years would have to be 14.2 percent per year.
The hypothetical $230 million lump sum contribution extends the Retirement Fund’s life, but the funded ratio will continue to go down due to insufficient annual contributions, the report added.
According to the Fund, the options are:
• Put more money in. This can be done by identifying any source of additional funds, requiring line-item appropriations and placing a pension obligation bond initiative on the ballot in the next election.
• Pay less. This can be done by again placing on the ballot a legislative initiative that disallows an increase in retirement benefits.
Both initiatives were rejected by CNMI voters last month.
In a separate interview, Speaker Froilan C. Tenorio, Covenant-Saipan, said the House is ready to entertain three bills that the Retirement Fund supports:
• S.B. 17-34 which allows the Retirement Fund to provide a non-compounding annual retirement bonus in lieu of COLA. This, according to the Fund report, will eliminate approximately $84 million in unfunded liabilities. The Senate has already passed the bill which is now with the House.
• H.B. 17-74, which allows the Retirement Fund to assess interests on over or under payment benefits. The bill, which is still with the House Ways and Means Committee, is expected to reduce the operational cost of the Retirement Fund.
• H.B. 17-98, which stops the accrual of retirement disability benefits beyond $75,000 for any member. The measure, which is also with Ways and Means, will also reduce the pension agency’s unfunded liabilities.
Tenorio said they will entertain these measures when the House convenes on Tuesday next week.
