This was the opinion expressed by the Retirement Fund counsels during the board meeting at their office on Capital Hill.
Expressing concern over the bill’s impact to the Retirement Fund, attorney Carolyn M. Kern told the trustees, “Our biggest concern, setting aside the existing litigation, the bill would have serious impact on the cost of our doing business.”
Kern said the bill opens up anyone that contracts or does any work with the Fund to potential lawsuits from anyone “that feels the contractor has harmed the Fund.”
She told the trustees, “I think it will have a serious consequence on our ability to enter into these contracts with the money managers that we have been interviewing.”
Wilshire Associates managing director Maggie Ralbovsky, Kern said, had already expressed concern after reading about the bill.
In a letter sent to Chairman Sixto K. Igisomar, a copy of which was provided by the Fund to the Senate, Kern said Ralbovsky stated that it will be necessary for Wilshire Associates to revisit their agreement with the Fund if that bill should pass.
Kern said, “In a discussion with Maggie Rabolvsky, she expressed that it simply wasn’t factored in their pricing when they entered into an agreement with the Fund that potential for this breadth of lawsuits and that they will have to come to Saipan to defend them.”
Kern added that even for frivolous lawsuits that could be dealt with earlier on, Wilshire Associates will still have a cost of coming to Saipan and defending lawsuits from any of the 6,000 members that would not be happy about anything that Wilshire did.
Although Wilshire Associates did not say definitively that it would no longer work with the Fund, Kern said the consultant conveyed the need to revisit the relationship.
She also said there were two other contractors who conveyed a similar concern.
With the passage of the bill into law, the current contractors may either pull out or it may become difficult for the Retirement Fund to contract services in the future because of the additional legal exposure and costs to be incurred, according to Kern.
She also reported to the trustees that the Fund has explored the possibility of providing indemnification to Wilshire to keep them on board; however, Kern said a major concern for the consultant is the legislators changing the terms of the contracts retroactively as the bill changes the statute of limitations to 20 years.
“Even lawsuits that were dead for years — barred by the statute of limitations — will now be revived,” explained Kern adding that the previous trustees who had served their terms would be at risk again if the bill is passed.
She even told the current trustees, “And you would remain at risk for 20 years beyond the end of your terms.”
Kern further raised the concern of the multiplicity of lawsuits that any beneficiary could bring against anyone that they felt harmed the fund.
She said the original bill provided that the fund would be a defendant in the lawsuit which the House version changed into a nominal plaintiff — a change welcomed by the Fund. However, the latter version had been rejected by the Senate last week.
Further, Kern said, the House and the Senate would have to iron out what is the Fund’s position going to be in this type of lawsuit.
Moreover, she also raised the unconstitutionality of the bill regardless of the version.
She said there is a clause in the U.S. and CNMI constitutions that prohibits the impairment of contracts. “By changing the terms of the contracts and applying those changes retroactively, they have impaired the contracts we had in the past,” she said.
Kern informed the trustees that the bill once signed into law would make it difficult for Fund to enter into contracts in the future.
Fund Administrator Richard Villagomez could not agree more as the bill would bring about “significant, potential litigation.”
“As a heads up to the trustees, if it does become law, then, I would most likely be requesting for additional in-house counsel to manage these litigations that may come up,” said Villagomez.
Merrill Lynch attorneys have also offered to submit an alternate bill, so did the Fund, said Kern.
She said the Fund, through its in-house counsel Chris Timmons, is working on additional protections to the Fund, just as the shareholder derivative lawsuits in other jurisdictions have a lot of protections that are currently absent in the bill.
Kern said, “We are trying to protect the Fund; they [lawmakers] believe they are trying to protect the Fund as well.”
In response to the allegations of inactivity of the Fund regarding the Merill Lynch lawsuit, legal counsel Viola Alepuyo, refuted the claims, saying, “The notion of inactivity by the board is incorrect; there has been a lot of activities.”
She said just because the board makes no statement about what is happening in the Merrill Lynch lawsuit doesn’t necessarily mean that the board isn’t doing anything.
Aside from the fiduciary audit that takes 68 weeks to complete, with the Fund engaging the services of one of only five available firms that can handle such a specialized service, Alepuyo said Igisomar was to form an ad hoc committee yesterday designating Trustee Jerry P. Crisostimo at the helm with trustees Marian Tudela and Josepha Barcinas as members to work with the legislators in addressing the various concerns.
“We have a lot of concerns with S.B. 17-43. I understand the Legislature has its own concerns as well. The greatest challenge is for us to agree,” said Igisomar in an interview during the board meeting’s five-minute recess.
He said yesterday that the Fund was trying to find ways to amend the bill. “We see a lot of danger in it. We are not supportive of it.”
The Senate on Friday rejected the House amendment to the bill.
The Senate also rejected the Fund’s substitute bill that winnowed down the types of lawsuits that can be brought against the Fund.
