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Pension Obligation Bonds Eyed to Fix Government's $80-Million Debt
By Liberty Dones, Saipan Tribune
Northern Mariana Islands
July 19, 2005
The NMI Retirement Fund may be inclined to ask the Legislature to pass a measure authorizing the agency to float pension obligation bonds as a way to resolve the government's longstanding debt in employer contributions.
Fund administrator Karl T. Reyes, who just arrived from the U.S. mainland where he attended a national pension plan conference, said that other jurisdictions in similar financial situation as the CNMI have floated such bonds.
"One thing we learned is that the problem we have here-the lack of funding-is the same as other states. Most of them floated pension obligation bonds," said Reyes.
Reyes said, though, that this could only be done in the CNMI upon the approval of the Legislature, as the law mandates only the Commonwealth Development Authority to float bonds.
He said floating this type of bond would be better because it involves cheap rates-as low as 4.8 percent. He said this would help both the government in terms of repayment and the Fund because it can invest the money and obtain greater returns.
"It would be very helpful for the government if they allow us to do it because those bonds are cheap in rates. If you float $200 million and we only have to pay back 4.8 percent, we can probably require the government to handle that repayment because that's a lot better than the government paying the Retirement 24 percent or 36 percent when the new budget comes in. It will help the retirement program because if we receive the $200 million upfront, or whatever the amount may be, we can invest that money and receive more to secure the funding for the Retirement Fund," said Reyes.
He said, though, that the Fund's board of trustees have yet to discuss the matter and only if they agree to adopt such a policy would they ask the Legislature and the Executive Branch for support.
Two board members, Rose Igitol and Bertha Deleon Guerrero, also attended the conference.
The CNMI government currently owes the Fund some $80 million in cumulative employer's contribution. The arrears reflect unpaid contribution from December 2001.
The administration said that payments to the Fund were current until June 1998 when a series of outside events such as Asian currency crisis resulted in reduced government revenue-from nearly $250 million to $213 million or less.
The government shoulders 24 percent of the employee's contribution while the employee only pays 6 percent for Class 1 members or 9 percent for Class 2 members.
Reyes himself considers this "very generous and lopsided" and expressed his support for the reduction of the government's employer's share.
The Retirement Fund decided in May to increase the government's employer contribution rate from 24 percent to 36.7727 percent in view of its delinquent status.
Reyes said it was a recommendation made by the Fund's consulting agency, which conducted an actuarial study in 2003.
The increase, he said, is necessary to ensure that the Fund continues to meet its current and future obligations.
The Fund consists of some 8,000 members. About 5,000 of them are active members.
So far, the Fund has some $393 million in total assets. By law, the Fund is required to bring its assets to $1 billion by year 2020.
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