by Alexis Villegas Zotomayor
If no efforts are made to stanch the Retirement Fund’s financial bleeding, the pension agency would be insolvent in 2.9 years, an official said. In his Dec. 22 letter to Rep. Sylvestre Iguel, Fund Administrator Richard S. Villagomez provided the lawmaker a projection of the Fund’s demise.
He wrote, “If no significant additional contributions are made to support current benefit payouts, the Fund will no longer be able to pay benefits in less than three years.”
Villagomez was commenting on Iguel’s H.B. 17-204 which would continue to allow Class I members of the Fund the option to pay in the difference between Class I and Class II to retire with Class II benefits.
Villagomez pointed out that the Fund had repeatedly alerted the lawmakers on the fiscal condition of the Fund.
He provided Iguel, Covenant-Saipan, with a graph that showed employee contributions for all active member employees, which cannot be paid out as benefits amount to approximately $113 million.Villagomez said, “If the Fund continues to withdraw $53 million per year as it did in fiscal year 2011 to fund benefit payouts, the Fund assets will be completely depleted in approximately 2.9 years.”
He told Iguel that if the Fund was put in a situation where it could no longer pay benefits, the Legislature would need to appropriate $80 million from the annual budget to pay current benefit obligations. He also told Iguel that the amount would balloon to $100 million by 2025 before it would start to decrease.
However, for Villagomez there’s still hope.
If the Fund would withdraw less than $53 million, it would be able to continue paying the benefits longer into the future with all other factors held constant. But if the drawdowns exceed $53 million, Villagomez predicted the Fund would be gone in less than 2.9 years — “with all factors held constant.”
For Villagomez, Iguel’s bill would accelerate the growth of future payouts and the Fund’s demise as the pension agency would be forced to make larger drawdowns to cover for increased benefit payouts.He reminded Iguel of the key factor in a reform measure in 1989 was the closing of the more generous Class II membership which he said was unsustainable.
P.L. 6-17, he said, reduced benefits for each year that the retiree would not be able to meet the retirement age of 62 years old to receive retirement annuity. Another law, P.L. 15-70 mandated that Class I members could still opt for early retirement with no corresponding deduction if they retired under 62.
Iguel’s bill proposes to make this permanent.
Although the bill questions the fairness of the early retirement option under P.L. 15-70 in the same way that H.B. 17-226 also raised concern with fairness that active members continue to contribute to a retirement system that will be dead in less than three years.
“We reason that it is ‘not fair’ to all members — active employees and retirees — that the heart of the matter has not been addressed: how are we going to fund the benefits of current retirees and new retirees (even those who retire under H.B. 17-204 if it becomes law) after the Fund runs out of money in less than three years,” Villagomez said.
Given the precarious condition of the Fund being in dire straits, he asked the suspension of early retirement in its entirety until the pension program has sufficient funding to support reactivation.