Bernadita C. Palacios, one of the trustees of the Retirement Fund board, said House Bill 16-190 that Rep. Justo S. Quitugua, D-Saipan, and three others had offered, would not help the local pension program.
Introduced on Nov. 5, H.B. 16-190 essentially seeks to repeal in its entirety a law authorizing the Fund to impose a 10 to 25 percent penalty to the central government for every month of delayed payment.
“The penalty provision pursuant to 1 CMC § 8362(e) for the nonpayment of the employer [government] contributions compounds the problem. The purpose of this act is to remove the penalty provision but not the obligation of the employer to pay the contributions,” states the findings of the bill.
Palacios told Rep. Ray N. Yumul, R-Saipan, who chairs the House Committee on Ways and Means, that the penalty clause was actually placed “to enhance compliance with the employer contribution provisions of the law.”
“This provision is limited to 25 percent, yet should be increased by a multiplier figure of an additional 9 percent per annum following attainment of the 25 percent threshold. The penalty provision does not compound the problem, rather it facilitates recovery of lost opportunity costs,” she said.
She reiterated that contributions remitted to the Retirement Fund are supposed to be invested as the pension fund is designed to be self-sustaining by 2045 with at least $1 billion in assets.
But the cash-strapped government had failed to remit regular contributions for years now.
Palacios said the penalty provision should discourage the government from withholding contributions.
“Every dollar unconstitutionally withheld by the Legislature from its constituent-employees’ employer’s contributions has a value of the dollar itself, the returns the dollar generates, and any available interest from the return which compounds over time,” she said.
“These tri-fold losses caused by withheld contributions are the very reason for the penalty provision. Repealing the penalty provision will expedite the Fund’s bankruptcy,” she added.
