The increase in Plan Net Assets was due to growth of its equity and government securities and a decrease in liabilities of 1.2 million. This is according to an independent financial report by J. Scott Magliari and Company. The number of members receiving benefits has steadily risen from 2,046 in FY01 to 2,461 in FY05. Furthermore, unfunded pension liability has escalated to $552M compared to $516 in 2004.

Summary of Highlights

• In FY 05, plan net assets available for benefits, which measures the amount available to pay future benefits to retirees and their beneficiaries, rose by $60M or 15% from $399.8M in FY 04 to $460M in FY 05. Significant upturns in investments of equity and government securities contributed significantly to the net assets increase which gained 21% and 31.6%, respectively, from the prior year. Overall investments also increased from $373M to $433M or 16.2%.

Total liabilities improved as well in FY 05. Liabilities decreased from $7.7M in FY 04 to $6.5M in FY 05, a $1.2M decline or 16% reduction. Reductions in payables and on the Judicial Building Trust Fund loan both aided in this positive change.

• The allowance for uncollectible receivables measures the allowance for bad debts based on management evaluations and collection experience. They are a possible loss of revenues due to bad debts not expected to be collected. These receivables include employer contributions from the various CNMI government agencies, CNMI appropriations, benefits receivable, and member home loan program, to name a few. Since FY 04, the Fund imposed a penalty at a rate of 10% per month with a maximum of 25% for any employer who failed to remit the required contributions; this amount is also among the allowances listed. As the chart indicates, the allowance for uncollectible receivables has continually risen each successive year, ballooning to $125M by the end of FY 05. The bulk of the increase is attributed to non collection of employer contributions and associated penalties.

• The number of members receiving benefits has steadily grown each year. There were 2,046 recipients receiving benefits in FY 01
  compared to 2,461 in FY 05, a 20% increase over 5 years. In FY 05, this group received $51.7 million in paid benefits or about $21,000 per person for the year. This is an increase of 3.7% from the prior year. In FY 04, $48.4M was paid out in benefits, roughly $20,000 per person. The benefits paid over the five year period increased steadily. Conversely, the ratio of total contributing membership of the plan to total number of pensioners has declined over the years. In FY 01, the ratio was 2.60 workers for every beneficiary; in FY 05 it was down to 2.24.

• Total unfunded pension liability is an actuarially accrued future liability of the fund. The unfunded liability is based on estimates and assumptions calculated of future funding needs. Because these figures are only estimates, there will be fluctuations in amounts of the liability. Several factors used in the calculations include the longevity of members, future earnings potential of the fund, future
  inflation factors, average retirement age of members, future administrative costs, future survivors of members, and future turnover of non-vested government employees.

As of FY 05, the unfunded pension liability was $552M, up 6.8% from the prior year of $516M. When the required amounts of contributions by the General Fund are not timely remitted in full to cover pension contributions, the unfunded liability increases twofold. First, potential earnings is
severely impacted by the inability to place those contributions in long-term investments. This causes a potential loss in revenues for the Fund, and therefore increases liability. Secondly, cash flows are
strained in order to meet the Fund’s current obligations. When cash is tight, the Fund resorts to drawing upon its principal investments to finance shortfalls, causing a financial burden which in turn
decreases net assets, and therefore increases liability. In FY 05, the Fund drew down $4.035M from its local investments and $4.5M from its ultra-short fund investments to offset the year’s shortfall.
With the passage of Public Law 15-15, the Fund will further exacerbate the Fund’s cash needs as required employer contributions were suspended until October 2007. Moreover, reductions in government payroll resulting from cutbacks in work hours will adversely impact the Fund’s ability to meet its pension obligations.Audit findings are reportable items considered material by the auditors.

• Findings document situations where established policy, procedures or standards have not been followed which may lead to losses for the CNMI or misstatements in its financial reports. Findings can ultimately lead to qualifications in the Opinion of the auditors. For 2005, there were no reported findings contained in the audit; however, certain matters were reported to management in a separate letter.

Download/view OPA Executive Summary

Download/view NMIRF Audited Financial Statements FY 2005