Fund Chairman Sixto K. Igisomar filed the complaint, urging the court to prevent Gov. Benigno R. Fitial and Lt. Gov. Eloy S. Inos from enforcing P.L. 17-51.
The Fund is asking relief from irreparable injury, prohibition from diminishment or impairment of accrued pension benefits and prohibition against impairment of contracts.
According to the complaint: “P.L. 17-51’s voiding of clauses in its existing contacts, including expansion of the universe of potential claimants; elimination of standing requirements; elimination of applicability of laws requiring the privity of contracts; voiding of the arbitration clauses and the extension of the statute of limitation that impaired the obligation of contracts between the Fund and its service providers, and as a consequence, deprives the Fund of the services of its professional money managers, investment consultants, actuary, and other service providers.”
“The Fund is about to lose most, if not all, of its money managers in the coming days,” the complaint added.
“People are scared. They don’t have a fallback,” Judge Kenneth L. Govendo said during yesterday’s hearing.
He said the Fund’s situation is aggravated by the government’s “doing nothing.”
Efforts to prevent the Fund’s demise are being done in “slow motion,” Govendo noted, adding that he already sounded the alarm and made suggestions in his 2009 decision which ordered the cash-strapped government to pay the pension agency $231 million. That amount is now over $300.
Govendo said “bad things have had to happen first” before lessons are learned.
Assistant Attorney General Gilbert Birnbrich, when asked by Variety after the hearing late yesterday afternoon described P.L. 17-51 as a “valid law that complied with the Constitution.”
Named respondents were Fitial, Inos, Clerk of the Superior Court Bernardita Sablan in their official capacities, and 10 John Does.
Birnbrich and Assistant Attorney General Michael Stanker represented the defendants.
During yesterday’s hearing Govendo granted the motion of three retirees — Mariano Taitano, Roman Tudela and Patricia Guerrero — to be interveners in the case. They are being represented by attorney Michael Dotts. The retirees and their lawyer lobbied for the enactment of P.L. 17-51.
Floodgates
The law has opened the floodgates of crises for the CNMI.
There would come a day when retirees will stop getting their retirement checks on the 15th or 30th of the month, Govendo said.
Fund Administrator Richard Villagomez said that will be “a crisis — a big crisis.”
Govendo noted that the bottomline is that the Fund is going out of existence.
“It has a judgment against the CNMI government for over $300 million. It is earning 9 percent interest,” he said.
He said the secretary of Finance testified in June that the budget for fiscal year 2012 is $102 million indicated the possibility of another government shutdown.
Of that amount, he said, the government will try to appropriate $10 million for the Fund — “which is not even equal to the interest.”
He agrees that the drawdowns are going to continue and if it does at this rate, in three years “it is all going to be gone.”
The reduction in benefits, Govendo said, will cost a lot of problems and might escalate into a political issue.
But in order to cut benefits, the Fund will need an actuary. “Right now there is no actuary,” the judge said.
He said he finds its disconcerting the actuary Buck Consultants is not stating the reason it’s terminating its contract other than the industry does not allow a law like P.L. 17-51.
Govendo said everybody should be working together.
If the case goes to the Supreme Court where it could languish for two more years, he added, “It is not going to accomplish very much.”
He added, “I don’t know if there are discussions between the parties. It is never too late.”
Villagomez told the court that the Fund board is struggling to perform its fiduciary duty, which it now finds “impossible” because of P.L. 17-51.
He said two of the most significant contractors of the Fund, the actuary and investment consultant, are essential to their operations.
P.L. 6-17 mandates that the Fund gets a consultant with at least $200 million in advisement.
Without the investment consultant, there is no person to advise the Fund on investment strategies.
The money that should have been invested in the market to earn more now sits with Bank of Hawaii. Villagomez said. “Less than one percent is the market return on all cash accounts in banks.”
With the investment portfolio going down, Villagomez said they cannot fault the advisor or money managers.
“That is something that we are doing to ourselves because of deficient employer contributions,” Villagomez said, referring to the government’s failure to pay its obligations to the pension agency.
The termination of contract by its consultant and money managers is unprecedented and “illustrates how objectionable P.L. 17-51 is,” he added.
But he said Wilshire may remain on board should it procure a liability insurance worth about $170,000 excluding the $190,000 it gets from the Fund annually.
Michael Dotts, attorney of the retirees who sued Merrill Lynch, told Variety in an interview: “Our position is we’ve always wanted to help the Fund.
We’re retirees. We need the Fund. We don’t want it to run out of money…. At the same time we would like to hold accountable other people who have hurt the Fund.”
He said they wanted to pursue the case against Merrill Lynch — the Fund’s former investment consultant — because they really believe that the company hurt the pension agency.
He told Variety that whatever they could recover will go back to the Fund to help the retirees.
He claims that the Fund hasn’t done anything to see if there are alternatives. “It’s not good that money managers have pulled out. But it doesn’t mean there are no alternatives,” he said.
