“Because the current market value of only a little less than $320 million is the only one that we have now that we can really count on as far as the big amount of cash that will be paid to retirees,” Igisomar said.
With more government employees retiring every year that consequently increases the pension benefits to be paid out, the Fund will have no other recourse but to dip into its market earnings.
Igisomar said the Fund needs about $80 million a year to cover operations, a big chunk of which goes to pension benefits. “Every year there is a budget we calculate for operation.”
During a special meeting Friday to discuss the proposed budget for fiscal year 2012, Igisomar said the Fund’s operation in FY 2010 cost $78.6 million. This increased to $84 million in FY 2011, and the Fund is projecting to have an even bigger budget in FY 2012 — approximately $88 million.
Igisomar said $73 million, $79 million, $83 million were the pension benefits for FY 10-12.
“How do we pay this budget? We cannot just reduce benefits that are due to retirees. We have to pay them. Every year when we make the budget, we always allocate the expenses that are due to the retirees, at the same time, we evaluate where we are going to get the money from,” the Fund chairman said.
He identified the government as the source for revenue.
“It is going to come from the government. We are going to collect employer-employee contributions which are a little shy of $20 million,” he said.
For FY 2012, the Fund is expecting a decrease in contributions to $17 million but Igisomar said they are looking at a budget of about $90 million.
“Where are we going to get the $70 million?”
In FY 2010, total revenue was estimated at $21 million. The following year, it was $30 million. In FY 2012, the Fund is projecting revenue to be at $14 million. For Igisomar, this is a huge reduction.
The reduction, he said, could be attributed to the reduction in work-hours of government employees, the shift from Defined Benefit to Defined Contribution Plan and employees withdrawing their benefits.
In order to fill the gap, Igisomar said the only other way is to withdraw from the Fund’s investments.
Projecting to draw down approximately $70 million per year, the Fund, will also hurt its chances to maximize its potential earnings.
“Every time we draw money, the opportunity to earn money decreases,” Igisomar said.
Based on the last data made available to this reporter, the Fund had already withdrawn $151.4 million from its investments since the pension agency’s inception up to May 2010.
Shortfalls
According to Igisomar, “Shortfall is expenses minus the revenue. We have the liability to pay the retirees. Every year, we need to get this money.
We already accounted for the employer-employee contributions.”
It was clear that the shortfall will have to be addressed by the withdrawals, Igisomar said.
“Every year there are more benefits to pay out. It’s directly related to how much we received from [employer-employee contributions]. Employees are moving over to DC [the Defined Contribution Plan], withdrawing their funds, and quitting from DB [Defined Benefit Plan]. When there are no employees coming to the DB, there are no payments. If there is a new employee coming in, the employee goes to DC plan.”
According to the Fund, the shortfall is increasing every year. In FY 2010, it was $47.2 million. Last year, it was $54.2 million. In FY 2012, the Fund is anticipating a $70.9 million shortfall.
During their board meeting on Friday, the trustees acknowledged that expenditures will continue to increase in the next decade.
Fund Administrator Richard Villagomez told the trustees: “Over time, the benefits payments will increase. It looks like the benefits will increase over the next 10-15 years until everybody is retired, then it will flatten out.”
Currently, there are 2,800 active employees in the Defined Benefit Plan.
Villagomez said pension payoffs will start to decrease after the 10- to 15-year period.
Trustee Adelina Roberto also expressed alarm over the figures presented as shortfalls continue to increase at an average of $3 million a year.
“We need to find a way to put in money.”
Igisomar said the Fund has to make withdrawals because fewer employees are making contributions due to the reduction in government salaries by 25 percent. “If their salaries are reduced, contributions to the Fund are consequently reduced.”
He said the only thing that the Fund is asking from the executive branch is to work with the Legislature “to see how we can increase contributions to the Fund and how we can get financial support.”
At a little less than $320 million, the Fund is currently at its lowest in the last 10 years: $335 million in 2002; $386 million, 2003; $400 million, 2004; $460 million, 2005; $473 million, 2006; $510 million, 2007; $396 million, 2008; $348 million, 2009; and $353 million, 2010.
The Retirement Fund won the lawsuit it filed against the cash-strapped CNMI government, which now owes it over $300 million.
Igisomar said they are still on the negotiating table with the central government.
