• 2/24/11 NMIRF Regular meeting notes

    2/24/12, Friday, 11:25 p.m.
    Hello Everyone:
    Today, I attended the regular meeting of the Northern Mariana Islands Retirement Fund (NMIRF) Board of Trustees. House Speaker Eliceo Cabrera attended the later part on the presentation by Wilshire.

    First, I want to let you know that the Fund Board held an Emergency meeting on the afternoon of February 8, 2012. I became aware of the meeting too late for me to attend. The only attendee was the Marianas Variety reporter. The Agenda contained only two items: First under New Business, Esteven M. King v. NMIRF and second, Buck Consultants Contract. As for the first item, I understand the King matter was taken up in Executive Session. As for the second item, the February 9, 2012 Variety reported that a letter of agreement with the Actuary, Buck Consultants LLC, had been approved by the Board for transmittal to the Attorney General to be checked for legal sufficiency before it would revert to the Fund Chairman for signature. The agreement would be for $59,000 and continue to December 21, 2012. The Variety article quoted Fund Administrator Rich Villagomez as saying of the contract: “They charge us on a progress billing…not to exceed this amount.”

    Now, as to today’s meeting, because it was so full, the agenda was revised to cover only nine items, and even some of those had to be deferred to a continuation meeting. The remainder will be taken up at the continuation of this meeting scheduled for March 9, 2012. Under the Public Comment portion I asked for clarification on two matters and made one suggestion. I asked if the Defined Contribution Plan (DCP) program has been reimbursing the Fund for administrative costs incurred by the Fund to accept and pass on the health and life insurance fees of the DCP members. I pointed out this was mentioned in meetings a year or so ago and the amount mentioned was about $41,000. Fund Administrator Rich Villagomez responded that, yes, the DCP program is reimbursing the Fund on a quarterly basis. I next asked if there would be a similar arrangement for the DCP program to reimburse the Fund for time spent by Wilshire in advising the DCP program while being paid by a contract with the Fund on behalf of the Defined Benefit Plan program. Mr. Villagomez assured me that Wilshire would document their time spent for the DCP program and the Fund would be reimbursed by the DCP program. I then suggested the Board consider also placing the Public Comment portion on the agenda just prior to going into Executive Session or adjourning meetings. This would be in addition to the current practice of having this near the beginning of the meeting. Chairman Sixto Igisomar said he would check to see if that would be allowed by the Board’s rules and regulations and, if so, would then consider the matter.

    The FY 2013 draft budgets for the Retirement Fund, the Group Health and Life program (GHLIP), and the Workers’ Compensation Commission (WCC) were next considered. Chairman Sixto Igisomar said the deadline to submit the budget to the Office of Budget and Management is February 29. He said changes can be made later if necessary but that the initial submittal should be made on time. Administrator Villagomez said he, the Deputy Administrator, and Accounting Manager all recommend approval of all three by the Board.

    Regarding the Fund budget, he said any change in the future would be “of a reduction nature, not an increase”. He pointed out that when P.L. 17-51 (the Beneficiary Derivative Lawsuit Act of 2011) became law on September 5, 2011, the Fund lost their Investment Consultant, Money Managers, External Auditor and Actuary. Additionally, some of the Fund attorneys gave notice they might also end their relationship with the Fund because of this new law. Therefore, he said, the Board approved the hiring of two new in-house attorneys and this is reflected in the draft FY 2013 budget. Now, with the repeal of P.L. 17-51, at least one, and maybe both, of those positions can be eliminated. This would result in a later reduction in the draft before the Board. Another reduction to be expected is in Money Managers’ fees (down about 18%), because of the more conservative approach the Fund will be implementing on the recommendation of Wilshire. The Money Managers’ fees in FY 2011 were about $3 million. On Wilshire’s recommendation, the Fund began terminating some of the Money Managers. By the time transitioning is completed, as soon to be recommended by Wilshire, Mr. Villagomez said the fees for Money Mangers for FY 2013 will go down to about $1 million. Another possible reduction might be in the area of payroll and benefits processing. Mr. Villagomez said outsourcing of these functions is under consideration now.

    Trustee Marian Tudela asked to know about the four new positions shown in the draft budget. Mr. Villagomez said two of those are the two attorneys just mentioned. Another one is a recommendation to hire a Comptroller. He explained that a desk audit conducted on staff of the Fund several years ago recommended that the Fund not have a Comptroller and that the work responsibilities of the Comptroller could be handled by only an Accounting Manager. The Comptroller position was filled at the time and was not eliminated. When the last Comptroller left the Fund, the position was not filled. Now the Fund management has determined that hiring a Comptroller would be in its best interest. Mr. Villagomez said a Comptroller would have a “broader knowledge of investments, financial analyses, and can understand actuary reports and tie all those together”. He said “the current Accounting Manager is doing a very good job but we need someone with greater knowledge“. Because the desk audit recommended against having a Comptroller, he said he needed Board approval today to fill that position. Vice Chair Roberto recommended that, if a Comptroller is to be hired, that the Accounting Manager position be eliminated. After some discussion, the Board approved a motion to eliminate the Accounting Manager position and, instead, add the Comptroller position.

    The fourth new position is for someone to handle the GHLIP. The staff now in that role has another position in the Fund and his job description does not include the GHLIP work. A portion of his salary comes from the reimbursement to the Fund from the GHLIP Trust Fund. Mr. Villagomez said that staff has indicated that the GHLIP is very demanding of his time and he did not wish to continue in that role. Further, Mr. Villagomez said they needed to put a person onboard so that there would be a someone already trained to effect a smooth transition if and when the program is transferred out of the Fund, as is anticipated by current pending legislation. The costs for that position would be borne by the GHLIP, not the Fund. Vice Chair Adelina Roberto asked how soon might the GHLIP be removed from the Fund. Mr. Villagomez told her a bill is pending. Should that become law, the budget would be amended accordingly.

    The Board approved the submittal of the Draft FY 2013 budget for the Retirement Fund as presented by staff.
    Going to the GHLIP budget, Mr. Villagomez said it was basically the same as last year, with adjustments made for the new increase in premiums, and one staff addition as mentioned above. There was some discussion as to whether or not the new position for GHLIP should be Civil Service or exempt. Board Attorney Viola Alepuyo pointed out that this would have to be spelled out in the law. Until that time, the position would have to be Civil Service. She pointed out that the budget sets a salary ceiling, above which the Fund could not go. However, the salary can always be lower than the ceiling. The Board approved the GHLIP draft FY 2013 budget with a condition that no action would be taken on the new position (Program Manager) until the Finance and Investment (F&I) Committee meets and “sanctions” that.

    The WCC budget was next considered. Attorney Alepuyo said minor changes needed to be made in the narrative portion to insure compliance with the law. The Board approved the budget as submitted with allowance for necessary changes in the narrative.

    Mr. Villagomez asked for assurance that he can fill any positions which become vacant and are still needed. Chairman Igisomar asked that one of the Board Committees (not clear to me which one. djc) meet Monday morning to discuss certain positions, including one for Ombudsman and one for Investigator, and come back to the Board with recommendations. He said it is his position that the Administrator and key staff are in the best position to know if they need more personnel in order to properly and expeditiously meet the retirees’ needs.

    Fund Attorney Carolyn Kern briefly explained a few things as to the Administrative Hearing Officer’s (AHO) recommendations for dismissal with prejudice of six disability claims, listed only by a number and initials. She provided the Board members with summary sheets and copies of the settlement agreements. The recommendation of the AHO for dismissal with prejudice of all six cases was then approved by the Board, one by one. Attorney Kern said 43 similar cases are in progress now.

    Attorney Kern explained that the GHLIP regulations were repealed in their entirety in November 2011 and new regulations prepared. This was done to make them compliant with the new Federal Affordable Health Care Act and to make them more applicable to changing conditions and definitions. Those were published in the Commonwealth Register as emergency regulations, taking effect immediately. Now, time has elapsed to the point where the Board is asked to approve the new version as final. The Board approved the regulations as final. Chairman Igisomar asked the Administrator and Board Attorney to see that there is a press release or a statement published this coming Monday or Tuesday to inform all GHLIP members of what these regulations entail.

    Fund Attorney Cristopher Timmons reported that, as instructed by the Board, Fund Counsel began foreclosure procedures on delinquent Member Home Loans. He said one was filed just yesterday. He then briefed the Board on one case listed on the agenda (designated as MHL #26), which went back to 1993, involving a 4-bedroom home. He said the law allows the Fund to hold a property it obtains in foreclosure for up to five years. In this particular case, he said they had to get “a contempt order to get the borrowers attention”. He said the Board had agreed to lease back the home to the borrower at $1,500 a month rental. The rental amount is being automatically deducted from this person’s pension check. The borrower has not been paying on the deficiency judgment. There was a very lengthy discussion about this particular foreclosed home and deficiency judgment of over $165,000, which, at 9% interest, is growing about $15,000 per year. I’m not too sure of this but I believe the final decision of the Board on the disposition of the property was to keep the property, advise the borrower that the Fund is the true owner of the property, put the property on the market for sale, cause the borrower to agree to allow the home to be shown to interested buyers, let the borrower know that he has first option (right of first refusal) to buy, and that, in the event he refuses to make the purchase, let him know that he will be given legal notice of eviction should another buyer be found. A decision on the deficiency judgment was deferred until more review can be made and further information provided to the Board by staff attorneys.

    At this point, there was a presentation by Fund Investment Consultant, Wilshire Associates’ managing director and principal, Maggie Ralbovsky. I’m appreciative of all the visitors being given a copy of one of her detailed handouts to the Board. I’m also appreciative to Chairman Igisomar for inviting me to sit at the table with the Board to facilitate my hearing. Ms. Ralbovsky provided an open and frank assessment of the Fund’s future. I wish I could give you more information, but I took very few notes and concentrated on just listening and trying to understand. What I include here are just bits and pieces, sometimes taken out of context, which might interest you.

    Ms. Ralbovsky started off with a frank statement that “not much has changed, but got worse”. She did say at one point that the months when P.L. 17-51 was in effect (September 5, 2011), until it was repealed by P.L. 17-67 (early January 2012), about 4 months, cost the Fund about $15 million in lost investment income. She said “Wilshire does expect this year to be a good equity market but things could change”, but it would be hard to predict what would happen next year.

    The handout stated that Wilshire recommended the Fund re-engage the following prior managers to execute the glide path strategy, Blackrock, PIMCO and Richmond Capital. It gave the asset management fees and benchmarks for each manager. The total cost for these managers is expected to be 0.19%, or about $475,000 (based on current assets). The Administrator said he already has a draft contract for Blackrock and that PIMCO is already on board. A little later, the Board did approve entering into contracts with these money managers. Ms. Ralbovsky asked to have it made clear that this approval included approval of the fees and benchmarks recommended by Wilshire. No one on the Board disagreed.

    Ms. Ralbovsky was asked by someone as to what Wilshire now predicts as the life of the Fund. She replied “we are looking at two years”. Chairman Igisomar said he stated in an interview with the media that the life of the Fund was at about 18 months. He said that statement was made on the best information he had available at that time. After Ms. Ralbovsky spoke about reducing drawdowns, Chairman Igisomar said, the only way to decrease drawdowns is to get more income from employers and reduce payouts in benefits. He said “this means benefits must be cut”. He said the Special meeting with Buck Consultants on Monday would give a good idea as to estimated cuts to be made.

    Speaker Cabrera said the legislators are looking at many possible things to help the Fund. He said just authorizing the Fund to take the proceeds of a golf course, at about $100,000 a year, for example, will not solve the problem. He said of the Fund, “You need cash; you need fresh money.”

    Ms. Ralbovsky spoke about a Pension Obligation Bond. She said “The weak point is the CNMI credit rating”. She said the investing public out there have come to the conclusion that you are not capable of paying off a bond. She said “Do not waste your valuable time doing that.”

    Regarding Casino, Ms. Ralbovsky said “Casino is a big pie in the sky. You simply don’t have the time to do that.”
    Some other bits from the Wilshire handout:
    “During Wilshire’s previous reviews in 2011, we stressed the urgency to reduce near term draw-downs to the investment portfolio. The aggressive near term draw-downs are depriving the Fund of an investment horizon and its risk taking abilities.”

    “Without a reasonable investment horizon, an acceptable level of return cannot be generated for the Fund. To devise a ‘going-concern” investment program, a 10 year investment horizon is necessary.”
    “The Board approved a ‘glide path’ asset allocation in August 2011. The crisis situation has not changed at NMIRF. Until material changes take place that can extend the investment horizon above 10 years, Wilshire continues to recommend moving back to the glide path allocations.”

    Regarding the proposal to allow working members of the Fund to withdraw their contributions, Ms. Ralbovsky said, simply speaking as an advisor to the Fund, it would be best to allow that to happen. However, she said there is a social problem which will affect everyone. If allowed to take their contributions out of the Fund, those people should be made fully aware of the consequences if they do not turn it around and invest it in something to ensure they have reliable funds to carry them through their retirement when the time comes. Chairman Igisomar said we all have a “social responsibility” which will be challenged in this event. Ms. Ralbovsky said “Education has failed” in other areas. Further, she said, in the last 30 years “it never happens”.

    The Chairman opened the floor for questions. I suggested that some retirees would be more likely to accept a cut in pension checks if the Fund first eliminated some of the benefits granted by law which they see as overly generous, such as the double pensions being collected by some retirees, their own and that of a deceased spouse, and such as the sometimes fraudulent adoption of children and grandchildren. Vice Chair Roberto agreed with me on this. I said the Board and others have spoken out about reduction of retirees’ pensions across the board. In order for that to take place, it requires amendment of our Constitution, no easy task. I asked just exactly how the Fund planned to proceed to cut pension benefits without amending the Constitution. I was told that the Board has made some assessments and discussed many options, including going to court. I asked if it would be possible for any court to unilaterally amend the Constitution. Chairman Igisomar said the options being discussed by the Board “could not be revealed” at this time. He asked Attorney Alepuyo to prepare some assessments on the matters I brought up.

    The Board approved a motion to immediately, this very evening in fact, begin to remove all funds from CDARS as soon as they mature and remove all other funds with custodians in preparation for having the money managers take over and start to invest these funds at the very earliest time possible. The Administrator said this might take about 3 days.

    As it was getting very late, these last items were pretty rushed. The Board approved Wilshire’s recommended Glide Path, which was contained in another of their handouts.
    The Board approved taking funds out of Vangard to give to Blackrock on execution of the contract with Blackrock.

    Attorney Timmons said 1 CMC Section 8373 sets criteria for Fund investment advisors. He said that applies to the investment consultant and not to money managers. He said the new Investment Policy Statement (IPS) “tightens up” wording to comply with that law. The changes are in the definitions, he added. The Board adopted the new IPS.

    The Administrator said Wilshire recommends that the Fund get out of the Commission recapture program, as it is no longer needed. (I have no idea what this is. Djc)
    A Special meeting of the Board was scheduled for Monday, February 27, 2012, at 1 p.m. The only item on the Agenda for this will be a presentation by Dylan Porter, director and consulting actuary at Buck Consultants, the Fund’s Actuarial firm.

    The next meeting of the Board, a continuation of today’s meeting, was scheduled for Friday, March 9, 2012 at 1:30 p.m.
    Today’s Tribune contains a notice in the Community column about two meetings for retirees. I encourage everyone to attend at least one of the two. These meetings are being called by the Legislature’s Special Committee on NMI Retirement, Chair Jovita M. Taimanao.

    From the 2/24/12 Tribune: “Retirees' meeting
    There will be a meeting for all CNMI retirees and beneficiaries on Saipan to discuss the Retirement Fund's current status and legislations regarding retirement. The meeting will be held on Feb. 28, at Kagman Community Center, and March 1 at the Multi-Purpose Center, both starting at 6pm. (PR)”

    A Superior Court hearing is scheduled for Tuesday, February 28, 2012 at 1:30 p.m. On December 23, 2011, the Commonwealth Ports Authority (CPA), the Commonwealth Utilities Corporation (CUC), the Commonwealth Development Authority (CDA) and the Northern Marianas Housing Corporation (NMHC) were approved by the Superior Court to intervene in the Fund’s collection lawsuit against the CNMI Government. Fund Attorneys and Attorneys representing these agencies are all expected to be present. Mr. Dylan Porter, director and consulting actuary at Buck Consultants, an Actuarial firm in San Francisco, may take the stand to testify about how benefit cuts could be restructured pursuant to the Fund's request to the Court in the Fund’s Motion for Equitable Relief.

    Today, I got my NMIRF Form 1099R, the form you must include with your tax filing. So, be on the lookout to get yours in the mail. Several people living out of the Commonwealth have asked me about this.
    I remind you that these notes are not a formal or official record of this meeting and what is written here is strictly my “understanding” of what transpired; I could be wrong on some points. Often, it is extremely difficult to hear and understand everything being said. There are sometimes items on which I simple don’t feel capable of providing reasonably good interpretations. My notes are abbreviated, and do not always cover all that takes place. To get full and accurate information for yourself, you should personally attend Fund Board meetings.

    Further, I remind you to periodically check out the NMIRF website, www.nmiretirement.com, and Glen Hunter’s website for retirees, http://kixproductions.com/cnmiretiree/ Note that Glen administers and updates his website free of charge to help keep retirees informed. There is a lot of valuable information on both these sites. Also, please keep in mind that the Fund is now sending out E-notices to retirees about upcoming meetings and other important matters. To get on their list, please send an email to: notice@nmiretirement.com and include your full name and email address.

    Please note that one of the Commonwealth Retirement Association Directors, and its Secretary, Jocelyn Guerrero, has changed her email address to jocelyndlguerrero@gmail.com .

    Warm regards. Donna

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