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Unfunded liabilities may force ASG Retirement fund to increase contributions

fili@samoanews.com

Current ASG Employees Retirement Fund board member, Brandt Judy, plans to resign as a trustee of the Fund, while the Lolo administration is looking at hiking by 5% the employer and employee contribution to the Fund to help cover “unfunded liabilities”, which currently stand at just over $40 million.
 
Judy, known to many as just “BJ”, is one of the five current board members of the Fund, which according to the fiscal year 2012 financial audit report has assets of more than $200 million. Gov. Lolo M. Moliga last year re-appointed Judy to the new seven-member board to ensure continuity of the new board; however, he along with the other nominees failed to get full endorsement by both the Senate and House.
 
Samoa News received word early this week Judy has sent a letter of resignation to the governor’s office and at the same time recommended for the governor’s office to retain on the future board, current board members Aleki Sene Sr. (the current chairman), and Morris Scanlan.
 
Responding to Samoa News questions, the governor’s executive assistant Iulogologo Joseph Pereira said “BJ called and informed us of his intention to resign from the Board. He had not sent a letter of resignation, but the governor honored his wishes.”
 
Additionally, he said, “I don't recall receiving any such recommendation from BJ” regarding Sene and Scanlan and “if he did, he didn't address it with me,” said Iulogologo, adding that “BJ didn't discuss with me his reasons prompting his resignation from the Board.”
 
Iulogologo also said the governor plans to submit names of the new board of trustees very soon.
 
UNFUNDED LIABILITIES
 
During his State of the Territory Address on Monday, the governor told the Fono the Retirement Fund’s “Unfunded Liability” as of 2012 was $48.46 million and the administration is looking at a total increase of 5% in employer and employee contribution to the Fund to cover the unfunded liabilities, which continue to increase.
 
Lolo says the administration is working on addressing this issue through appropriate legislation to be presented to the Fono later this year.
 
When asked for additional details late Monday afternoon, Iulogologo told Samoa News the current rate of contribution is 11%, which is 8% ASG and 3% employee contribution; and that the ‘unfunded liability’ is the amount the Fund would owe to ensure that annuities to all retirees are maintained throughout the life of the fund.
 
There are two concerns Iulogologo raises with the status of the Retirement Fund.
 
One is that for the first time, according to Iulogologo, the ASG has been required by the federal government to include the financials of the Retirement Fund in its audited financial statements; and, the second is the “liquidity and the health of the fund is indicated by the amount of its unfunded liability.”
 
“If the unfunded liability is high the risk associated with the fund is also high,” he said and pointed out the Actuarial Study has indicated ASG must raise its contribution from 11% to 15.8%.
 
“This means ASG and the employee must contribute an additional 4.8% to the fund in order to address the $48.5 million determined unfunded liability. This amount was determined by the Actuarial Study and based on the earning capacity of the Retirement Fund,” he said.
 
“If financial burden is split evenly between ASG and employee, each will have to put in 2.4% extra. For the employee this 2.4% is taken out if his/her disposal income,” Iulogologo said, adding ASG did not budget in FY 2014 for any additional contribution to the Fund.
 
“If we are to assume a total ASG payroll, exclusive of the Authorities, is $100 million, the government will have to pay into the Retirement Fund an additional $2.4 million,” he said and explained the reason for the jump in the amount of ‘Unfunded Liability’ is “because our investments by the Retirement Fund did not meet our expectations.”
 
“The Retirement Fund earnings have declined in the last several years,” he said and noted, “we can’t get any current information” from the board, or the Retirement Office executive director regarding the Fund for year 2013.
 
“The unfunded liability may have increased beyond the $48.5 million for 2012,” he said.
 
An actuary report in February 2013 prepared by the firm Sage-View for the Retirement Fund board meeting in Honolulu providing the “valuation” of the Fund in 2012, states in part that  “we believe the policy rate of 8% (by the employer) in conjunction with employee contribution of 3% is sufficient to support the benefits and administrative expenses for the Fund in the short term.”
 
In his address to the Fono on the State of the Territory, on Monday, the governor also pointed out a comparative assessment of a random sample of similar retirement plans in the states and territories reveals ASG’s pension plan “has the highest rate of administrative expenses of all funds reviewed.”
 
“Funds used for these expenses could have been invested to generate greater benefits for the Fund membership,” Lolo said. “It is our shared responsibility to protect the financial integrity of the Fund.”
 
BACKGROUND
 
An independent audit of the Fund for 2012, conducted by the auditing firm of the Seattle-based Moss Adams LLP,  states that the “net assets” of the Fund at the “close of fiscal year 2012 are $200,141,211...” Additionally, all of the net assets are available to meet ASGERF’s ongoing obligations to plan members and their beneficiaries.
 
(The report noted that net assets at the close of FY 2011 stood at $181.72 million and $201.16 at the close of FY 2010.)
 
As reported by Samoa News last March, the results of the audit confirmed what Sene informed Gov. Lolo Matalasi Moliga in a letter in January 2013 that the “board is happy to report that at the end of 2012, the Fund gained over $19 million to push its net assets over the $200 million mark.” (See Samoa News story Mar. 1, 2013 for more details).



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