Retirement Fund may follow CNMI
THE Government of Guam Retirement Fund (GGRF) is in much better shape than the Commonwealth of the Northern Mariana Islands Retirement Fund, but it needs to take some steps immediately to avoid serious financial problems in the future, according to David J. John, president of ASC Trust Corporation.
John spoke to members of the Rotary Club of Guam yesterday. He said when the defined benefit retirement plan of GovGuam was closed to new members in 1995, all subsequent employees went into a defined contribution plan “with no safety net.”
Currently, most of the money contributed into the fund by active-duty GovGuam employees goes to support the benefits being paid out to those who retired under the defined benefits plan. Right now, only about 5 percent of the money contributed for employees in the defined contribution program is invested on their behalf.
“That’s the part that’s really troubling,” John said. “The people in the defined contribution plan are being sacrificed for the benefit of the defined benefit people.” He said the Retirement Fund board of directors has known this for years “but does nothing about it.”
The safety net was supposed to be Social Security, but it will apparently take an act of Congress for employees of the government of Guam to be included in the federal Social Security system. In the meantime, John says, the government of Guam should be putting an amount equal to an employee’s Social Security contribution into a “lock box” so the funds will be there, or as an alternative, set up a second retirement program for what would be the Social Security contributions and invest them alongside the basic retirement fund on behalf of those in the defined contribution plan.
Turning his attention to the CNMI, John said he just returned to Guam from Saipan where he participated in meetings with retirement fund officials. There, the government has not made the legally required contributions for many years and the fund is in worse condition, facing some difficult choices.
The CNMI fund recently attempted to declare bankruptcy, but a federal bankruptcy judge denied the motion. He said, in effect, the CNMI Retirement Fund is an agency of the commonwealth government, and fundamentally the government is responsible for it. It cannot independently declare bankruptcy.
John said as he sees it, the tight circumstances facing the CNMI are going to require everybody to “take a haircut” – accept reduced benefits from their retirement fund in an attempt to keep the fund alive. Ultimately, it will just be absorbed into the general fund of the government.
ASC Trust Corporation is a retirement plan advisory company which has the CNMI Retirement Fund’s defined contributions plan as a client. The firm also offers a variety of plans and services on Guam such as health savings accounts, college savings plans and section 125 cafeteria plans.