IN a year of exceptional challenges and disruption, the CNMI government continues to timely remit its biweekly Settlement Fund payments, said NMI Settlement Fund Trustee Joyce CH Tang in a report filed on Sept. 9, 2022 in federal court.
“Governor Ralph Torres has [also] announced that he is committed to continue funding $545,000 bi-weekly payments to cover the 25% portion through the first quarter next fiscal year,” Tang added.
According to the trustee, post-pandemic recovery has been slow.
“With Russia’s invasion of Ukraine in February 2022, skyrocketing inflation, and three rate hikes from the Federal Reserve, these impacts have rippling effects in the investment markets, travel, and pandemic recovery,” she said.
She noted that tourism, the backbone of the CNMI’s tax revenue, has begun to recover.
In July 2022, she added, there were 10,367 visitors compared with 1,197 visitors in July 2021.
But the July 2022 figure represents only one-third of the number of visitors pre-pandemic, Tang said.
Meanwhile, the pandemic and the war in Ukraine have “directly impacted the global financial markets throughout 2022 and no pension or retirement fund is immune from these impacts,” Tang said.
“With no end in sight to the war in Ukraine, we will likely see more inflation, supply chain issues, turmoil and volatility in the financial markets. The Settlement Fund made substantial gains on its investment portfolio during the pandemic. With inflation and geopolitical conflicts, the gains have been reduced compared to pre-pandemic,” Tang said.
Designated Federal Judge Frances M. Tydingco-Gatewood has scheduled a status hearing for today, Thursday, Sept. 15, at 10 a.m.
Background
In 2009, retiree Betty Johnson sued the CNMI government for its failure to pay the amounts that it was required by law to remit to the Retirement Fund since 2005.
Johnson said the Fund would run out of money by June 2014 and would no longer be able to pay retirement benefits.
In September 2013, the parties agreed to settle the lawsuit and the federal court approved a $779 million consent judgment in case the CNMI government did not meet its obligations to the Settlement Fund.
The Settlement Fund was created by the federal court as part of the settlement between the CNMI government and retirees.
On Sept. 25, 2013, the federal court appointed Tang as Settlement Fund trustee.
Inflation risks
According to the trustee, in June 2022, the Settlement Fund rebalanced its investment portfolio to include a diversified hedge fund “thus mitigating some of the inflation risks to the investment portfolio.”
She said as of Aug. 31, 2022, the Settlement Fund had 2,553 class members.
This is broken down into two categories: 2,553 retirees, and 75 active employees, 23 of whom are retirees who have returned to government service.
According to the trustee, between FY 2021 and Aug. 31, 2021, the class membership decreased by 73 members.
Minimum Annual Payment
As reported on Dec. 10, 2021, Milliman Inc., the Settlement Fund’s actuary consultant, projected a MAP of $38 million for FY 2022 and $36 million for FY 2023.
The $38 million represents the amount the CNMI government has to pay for the 75% benefit payments due under the Settlement Agreement, Tang said.
The government has and continues to make the biweekly MAP for FY 2022, she added.
“Of the $38 million MAP due for FY 2022, to date, the [CNMI] Government has paid the Settlement Fund $34.5 million,” Tang said.
The accounting of MAP is reported and posted on the Settlement Fund’s website and updated regularly at https://www.nmisf.com/rfp/annual-paymentstatus/.
Tang said since the implementation of the biweekly MAP in 2018, the Settlement Fund has avoided having to draw down on its investments to pay benefit payments.
“This was made possible because the [CNMI] Government kept its promise to make biweekly…payments, and the enactment of Public Law 20-33. Public Law 20-33 established a Settlement Fund Revolving Fund Account funded by NMI Gross Revenue Taxes, which are exclusively used to pay for MAP…beginning in FY 2018 through FY 2024,” Tang said.
APGA
The Settlement Agreement also requires the CNMI government to make an Alternative Payment of a Greater Amount equal to the difference of 17% of the government’s total annual revenue, after deducting the amount of MAP paid.
“Based on the Government’s audited financial statements in FY 2018 and FY 2019, no APGA was due for these fiscal years. Whether the Government will be required to pay APGA for FY 2020 and FY 2021 will be determined once the Government releases its audited financial statements for these periods,” Tang said.
Voluntary payment
To date, Tang said the CNMI government has also remitted $12.1 million to the Settlement Fund for the FY 2022 25% benefit payments.
The government has voluntarily made the 25% benefit payments under the Settlement Agreement.
Based on media reports, Tang said, Governor Torres has committed to paying the 25% benefit payments through the first quarter of FY 2023.
“The Settlement Fund continues to assist with the processing of the 25% benefit payments conditioned on the Government’s timely payment of the MAP obligations and fulfillment of other payment obligations, such as the APGA and Employer Contributions,” Tang said.
In addition to paying the 25% benefit payments, in April 2022, the Legislature passed a bill authorizing the payment of a bonus to Settlement Class Members in the amount of $1,000 each.
“Like the 25% benefit payments, the bonus payments are purely voluntary. At the Government’s request, the Settlement Fund assisted with processing the bonus payments,” Tang said.
As for employer contributions, Tang said the CNMI government and its autonomous agencies are required to submit employer contributions or ER after each pay period pursuant to Paragraph 5.0 of the Settlement Agreement.
“The Government and the autonomous agencies are current on their ER obligations through August 13, 2022,” Tang said. “With respect to the [Commonwealth Utilities Corp.], the Settlement Fund and…CUC have reached a tentative settlement regarding…CUC’s outstanding ER balance and are working out the details regarding repayment,” she added.
