According to Fund Administrator Richard S. Villagomez, the Fund has made a cumulative drawdowns of $223,410,000.
Over the last three months, the Fund has withdrawn $10.93 million — $5.12 million, June; $2.1 million, July; $5.6 million, August — or 20 percent of its annual budgeted $54.2 million drawdown for fiscal year 2011.
Operating costs for the pension system increases by the year with declining revenues resulting from non-payment of actuarially defined contributions and a volatile market.
In FY’10, the Fund operated with an estimated $78.6 million budget. This increased to $84 million in FY’11 and is expected to increase to approximately $88 million in FY’12 based on Fund’s earlier estimates this year. For fiscal years 2010-2011, the Fund allocated $73 million and $79 million respectively for pension payouts. It is looking to pay $83 million in benefits in 2012.
Projected shortfall continues to increase: $47.2 million, FY’10; $54.2 million, FY’11 and $70.9 million, FY’12.
Fund Administrator Richard S. Villagomez said, “The underfunding situation of the Retirement Fund has been an issue since its inception, and continues to be an issue despite our efforts to get the appropriate level of funding from the CNMI.”
As of Aug. 19, the value of the Fund’s investments dropped to $271,321,977, a negative 10.63 percent return for the period July 31 to Aug. 19.
Market volatility and drawdowns combined to pull the Fund portfolio down: $321 million, in April; $311 million, in June, and $271 million in August.
“Our elected officials are fully aware of the financial status of the Retirement Fund because we present it to them every chance we get in an effort to get sufficient money to support the system,” Villagomez told Variety.
In Jan. 2011, Villagomez did apprise Lt. Gov. Eloy Inos of the impact of not receiving employer contributions resulting in more withdrawals from its portfolio to cover larger funding shortfalls.
He told Inos if the deficient contributions persisted, “assets will be depleted sooner by approximately 1.2 years based on preliminary projections” of Wilshire and Associates.
Villagomez said their most recent testimony was in a joint Senate and House meeting Aug. 23 where lawmakers were told the Fund would run out of money by 2014 unless liabilities are restructured.
“The Retirement Fund has been shortchanged for too many years leaving no other option,” the Fund administrator said.
The same short outlook was presented to the lawmakers during Buck Consultants’ May12 presentation that called for addressing funding issues.
“Members of the Fund should demand that retirement contributions be prioritized in the budgeting process this year and every year going forward,” Villagomez said.
The Fund remains 70 percent underfunded which means the Fund has 30 cents available for every dollar of anticipated liability.
Fund asks Court to restructure benefits
The Fund on Aug. 26, filed in the Superior Court a motion to reconsider the court’s June 29 order that set aside $100 million in reserve for the defined benefit pension plan members should the Fund collapse.
The Fund asked the court for “equitable relief” by prolonging the life of the Fund through restructuring its pension obligations and requiring the CNMI government to pay the remainder.
Last Friday, the Fund also filed an Application for an Order in Aid of Judgment seeking for the court to grant the Fund title to the Marianas House — CNMI government’s property in Washington D.C. — in partial satisfaction of the judgment owed to the Fund.
In an email to Variety, Villagomez said, “With respect to the restructure, the Fund is governed by law and plans on complying with the Retirement Fund Act and/or any order of the Court with respect to payment of benefits to members and their survivors.”
He also said that it is the Fund’s position that pension is an obligation of the employer, the CNMI Government and each autonomous agency with respect to its employees.
“Once the funds set aside in trust for payment of such pension are exhausted, the CNMI government will be obligated to pay pension benefits from the Commonwealth Treasury,” Villagomez said.
The Fund also stated in a release that contributions should be protected in accordance with the Retirement Fund Act and the best way to protect the program from collapse in three years is to ensure that every DB Plan member is equitably paid a portion of what they are owed.
The Fund also argued that it could not unilaterally restructure benefit payments; however, it is seeking the court to use its equitable powers to restructure the Fund’s liabilities by “temporarily reducing benefits paid to retirees.”
The Fund also asked the court to order the Fund, the government and the Commonwealth Retirees Association to participate in a court supervised judicial mediation “within 15 days of the court’s order” and to continue until such time as an equitable agreement has been reached on the restructure of the Fund’s liabilities — benefits.
The Fund is asking the court if it could issue an order allowing it to restructure liabilities no later than Jan. 1, 2012.
Derivative lawsuit bill
Villagomez told Variety that the Fund has not received any word yet whether the governor will veto or not Senate Bill 17-43. But he said the Fund is hoping for its disapproval.
Press Secretary Angel Demapan told Variety yesterday, “At this time, the derivative bill is still before the Governor undergoing review before a final determination is rendered.”
Demapan also said the governor is also reviewing comments that are being submitted from respective parties who are supporting and/or opposing the measure.
He said the governor will come up with an appropriate decision after a thorough review of the arguments for and against the bill.
Ralbovksy in an interview with Variety last week said they had provided the governor a letter indicating their concerns. Two money managers also furnished the administration their comments on the bill that Ralbovsky described as “anti-business” and lacking in protections as provided in the corporate derivative law.
Investing is not a silver bullet
Ralbovksy also clarified last week that the CNMI cannot invest its way out of its trouble.
She advised a glide path or conservative approach is the only way to contain the damage from the volatile stock market.
Given the Fund’s declining assets, she advised the pension agency to invest more in fixed income than stocks.
As of June 30, the Fund allocated $174 million in equity, $51.447 million in bonds, $$47.46 million in international equity, $2.5 million in special investments, and $36.99 million in other investments.
