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Gov Lolo demands investigation of pension plan investment strategies

Gov. Lolo Matalasi Moliga says the reduction in funding capacity for the ASG Employees Retirement Fund “demands” an investigation of the pension plan and he is looking at amending the fund’s law to hold board of trustees responsible for investment losses.

 

Since taking office in January 2013, the governor has not minced words regarding his  concerns with the status of the Retirement Fund, despite its portfolio of just over $200 million in assets at the end of fiscal year 2013.

 

In his State of the Territory Address, the governor said the recently released 2014 audit report for the Retirement Fund notes a “significant reduction in its funding capacity to 63.5 % from 80.7% in 2013 [and] demands an investigation of this fund.”

 

“It is important to review the effectiveness of investment strategies, since investment earnings effect the funding capacity of the fund and the level of unfunded ability,” he said, adding that the drop between 2013 and 2014 in the payment ability of the fund casts concern on the investment strategies being employed for the investment of the fund's financial resources.

 

“The implication of the continued drop in the value of the fund translates to consideration of the increase in fund contributions by fund members,” he said. “This places financial pressure on the government resources to meet any increase in fund member contributions.”

 

He says legislation might need revision if it is determined that certain provisions need to be changed. “One possible legislative change will be to hold each Board Member fiduciary responsibly liable for the performance of the fund, with personal assets tied to the fund performance,” he said.

 

Lolo also says that starting in 2015 the Fund’s financial statements will be considered in the assessment of ASG’s overall financial position.

 

The governor went on to explain that for the third consecutive year, the Retirement Fund’s funded percentage has declined: 2011– 94.1%; 2012– 89.3%; and 2013– 80.8%.

 

Further, recent numbers obtained from the 2014 audit report reveal that the funded percentage of the fund has fallen to 63.5% — a 21.3% drop between 2013 and 2014 — and this “affirms initial concerns over the declining solvency of the fund.”

 

According to the governor, this is a concern because it’s clear that with the acceleration in the number entering retirement, the pension plan payments will correspondingly increase.

 

And if action is not taken to generate more revenues commensurate with the quickened rate of payouts, he said, the funded percentage of the Fund will continue to decline, eventually rendering the fund insolvent.

 

“I have raised this issue because of its overall impact on the financial operation of the American Samoa Government,” he said. “The solutions are to improve the investment returns on the funds and to increase contributions from employers and employees.”

 

And if it is determined that fund contributions need to be increased, Lolo says legislation will be submitted to authorize increased contributions, along with the source of revenue to meet ASG’s contribution.

 

In its Feb. 19, 2014 “actuarial valuation” report on the Fund, as of Oct. 1, 2013, Sage-View says, it believes the policy rate of 8% for employer contributions in conjunction with employee contributions of 3% — 11% total— “is sufficient to support the benefits and administrative expenses of the Fund in the short term. Emerging experience will dictate whether or not the policy rate is sufficient in the long term.”

 

The report went on to point out that employer contribution rates for the same period are 11.45% of total payroll.