“IN SUPPORT OF REJECTING PROPOSED BILL TO RAISE LOCAL INVESTMENT OF ASGERF”
The proposed legislation by the administration to increase the Retirement Fund's local investment cap from 17.5% to 35% is extremely dangerous and will definitely lead to bankrupting the funds.
There are numerous misleading statements and misinformation about the proposed legislation. To be clear, while the ASG Employees' Retirement Fund is regulated locally by Chapter 14 of Title 7 of the American Samoa Code Annotated, it is governed at the federal level by the Employee Retirement Income Security Act, or more commonly known as ERISA.
Under ERISA, 10% is a set standard for loans of asset funds at cost to the sponsor. The US Congress intentions were to place a cap on the loans to protect the plan in the event the sponsor is unable to repay the loan. Recent information revealed of the increase from 10% to 17.5% is due to the $20 million loan under the Togiola Administration is correct. However, that loan has since been repaid in 2016. Therefore, to be in compliance with ERISA, the cap should have been reduced back to 10% regardless if there was a sunset provision under the $20 million legislation.
Furthermore, the primary responsibility of the Board of Trustees is to run the plan solely in the interest of participants and beneficiaries; for the exclusive purpose of providing benefits and paying plan expenses. The Board of Trustees must follow the terms of plan documents to the extent that the plan terms are consistent with ERISA. The Board of Trustees must also avoid any conflicts of interest. In other words, they may not engage in transactions on behalf of the plan that benefit parties related to the plan, such as other fiduciaries, services providers or the plan sponsor.
The ASGERF Board of Trustees' decision to own Hawaiki's Cable American Samoa Branch venture far exceeds their mandate and dangerously reduces investment income for the fund by at least the next ten years. Furthermore, their decision to loan/ invest in ASTCA a total of $30 million within the last two years clearly violates the "Prudent Man Rule" on which ERISA is based on.
It is disheartening to know that the ASGREF Board of Trustees made a decision to loan ASTCA all that money knowing full well that ASTCA's fiscal year 2016 audited financial statements show a cash flow of minus $2,090,001 and in the fiscal year 2017 statement, it shows a minus $1,069,827.
In the real world, no bank would make a loan to a company with ASTCA's financial status. Yet, the ASGREF Board of Trustees managed to mitigate their risk by getting ASG to agree to guarantee ASTCA's debt. If ASTCA defaults on their loan from the Retirement Fund, the Government and ultimately the taxpayers of American Samoa will be responsible for repaying the loan.
While there has been no appropriation bill from the administration or ASTCA on how to repay these astronomical loans, the Fono still needs to do its legislative duty by requesting all the transactions, contracts, agreements and reports on these loans and/ or investments as any borrowing by the Government must be approved by the Fono. After all, it will be the future generation that will have to pay for all these exorbitant loans.
The ASGERF was created over 40 years ago to help support the income of our elderly workers like my mother Palepa Milo Seui and many residents with parents whose social security was not enough when they ended their employment service with the government.
Since then the contribution and prudent investment in the global market have helped it grow from $300,000 to nearly $300 Million under the management of the five independent Board of Trustees at that time.
While the global investment portfolio will have its moments, understanding the market and knowing your investments is why the funds have been successful for many years before the current administration. For example, the ASGERF's Actuarial Valuation for FY 2017 shows an investment return of 12.78% due to a strong global market performance. Yet, the proposed rate of return for the Hawaiki Cable is at 8%.
It is just mind boggling trying to understand the rationale of taking millions of dollars away from our global market investment (International and domestic) in this FY 2018 when the rate of return is at 12.78%, to invest in Hawaiki — a very risky business venture — for a return of only 8%.
Today, it is very worrisome that what was once a source of security for the fund members, it has now become ASG's source of loans for projects and help to refinance government debts. The years of blood, sweat and tears are now in jeopardy.
In conclusion, I applaud and thank all the Senators who voted "NO" on the Administration Bill. I hope and pray, the House members will do the same for the future of their districts and American Samoa.
(Editor’s Note: For the sake of transparency, Samoa News should point out that Larry Sanitoa is a candidate for House Representative — Tualauta District#15 in this year’s general election.
However, Samoa News decided to run his LTE because of the many calls we have received about the Retirement Fund loans to ASTCA-Hawaiki Cable that they are now identifying as an ‘investment’. We believe it is a hot button issue that should be addressed — pros & cons. ra)