MISSA opposes Bill# 50
posted 09/30/09
On March 9, 2009, another proposed legislation (Bill# 50) was introduced in the Nitijela to repeal Sections 103(q), 136(1)(a), 136(2)(a)(c), 136(3)(4) and 144 of the Social Security Act of 1990 (The Act).
The bill seeks to remove the early retirement benefits in order to enable a worker or self-employed worker to be fully insured to the amount contributed at the normal retirement age of 60. It will also eliminate the "earnings test" which will get rid of reduction of quarterly benefits of a retiree aged 55 to 62 years who is still in covered employment.
The Act provides option for a worker and self-employed worker to get an early retirement at the age of fifty five (55) provided that such worker or self-employed worker is "service insured" (has earned at least 80 quarters of coverage).
Section 103(q) gives the definition of "early retirement" as retirement when a worker or self-employed worker elects to retire before meeting the requirement for normal retirement. A worker or self-employed worker must have attained the age of fifty-five (55) and be service insured to be entitled to early retirement.
Under Section 136(1)(a), a service insured worker or self-employed worker, on or after his attainment of 55 years of age, and after filing an application, shall be entitled to an early retirement, old age insurance benefit payable every month beginning with the month those conditions were satisfied and ending with the month preceding the month of death.
(a) The monthly amount of the early retirement, old age insurance benefit shall be the basic benefit reduced by one-half (1/2) percent for each complete month that the date of early retirement precedes the date the worker or the self-employed worker attains the age of 60 years, but not less than the minimum benefit.
(c) The monthly amount of the deferred retirement, old age insurance benefit shall be the basic benefit increased by one-half (1/2) percent for each complete month that the date of deferred retirement follows the date the worker or self-employed worker attains the age of 60 years, but not less than the minimum benefit.
"Deferred retirement” means retirement when a worker or self-employed worker elects to retire after meeting the requirements for normal retirement. A worker or self-employed worker must have attained or exceeded the age of sixty (60) years and one (1) month and be fully insured (must have earned at least 38 quarters of coverage) to be entitled to deferred retirement.
(3) If a person who is receiving an old age insurance benefit accepts covered employment, the benefit shall be re-computed at the end of the calendar year and re-computed benefit shall be paid beginning with the first month of the subsequent calendar year.
(4) It shall be the duty of such beneficiary to notify the Administration immediately after he accepts covered employment, of the fact of such employment.
Under Section 144 (The Earnings test), where any of the provision of this Part provides that a benefit is subject to this Section, a worker or self-employed worker who is in receipt of that benefit and at the same time is in covered employment, shall have his quarterly benefit reduced by one dollar (US$1.00) for every three dollars (US$3.00) earned during that quarter in excess of fifteen hundred dollars (US$1,500). The reduction shall be made as soon as practicable after the quarter in which the earnings were earned. Notwithstanding the foregoing, the earnings test is not applicable in the quarter in which the worker or self-employed worker who is receiving the benefit attains sixty-two (62) years of age, or in any subsequent quarter thereafter.
As what she usually does before responding to any proposed legislation that affected MISSA in the past, the MISSA Administrator consulted first with the actuary who in turn conducted a thorough study on the effect to the Fund if the bill is passed.
Subsequently, the actuary came up with a recommendation not to support the bill. The result of his study revealed that, although abolishing early retirement will save MISSA around $700 thousand a year in benefits, the Administration will also have to pay $1.1 million more in benefits if the earnings test is removed. Therefore, the net effect is a $400 thousand increase in benefits a year which MISSA can not afford at the moment.
In the past, a number of similar bills have been proposed which were not supported by MISSA because it sought to increase further the pension of current beneficiaries (old age and medical retirees, and survivors). In a recent review, MISSA discovered that more than 90% of the current beneficiaries have already withdrawn more benefits from the Retirement Fund than what they have contributed.
Below is the MISSA Administrator's response:
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September 16, 2009
Honorable Senator David Kabua
Chairman, Nitijela Standing Committee on Health, Education & Social Affairs
Republic of the Marshall Islands
Re: MISSA’s response to Bill# 50 (Elimination of Early/Deferred Retirement & Earnings Test)
Dear Chairman and Senator Kabua,
The Marshall Islands Social Security Administration (MISSA) wishes to express its objection to Bill no. 50 as eliminating both early/deferred retirement and earnings test will result to a net increase in benefit payments. As you are aware, the Marshall Islands Retirement Trust Fund is not yet ready to afford such benefit increases.
According to the study done by our actuary, eliminating early retirement would reduce benefit payments by $700 thousand a year which is in line with MISSA’s goal to remain financially viable. However, if the earnings test is likewise eliminated, it will translate to at least $1.1 million in additional benefits and the net effect will be a net benefit increase of $400 thousand which the Administration cannot afford at the moment.
Therefore, our actuary recommended that due to the current funded status, no change should be made to the system that would increase benefits.
With the current fiscal year ending in just a couple of weeks, the Administration projects that FY 2009 benefit payments will total $13.60 million while administrative expenses will amount to $0.95 million. If the total amount of benefits and administrative expenses are subtracted from the projected contributions of $13.80 million, MISSA will have a net operating deficit of $0.75 million before other income (from interest and dividends) in the current fiscal year.
Even if our investments will break-even in the current fiscal year and our net assets remain constant from last year, our unfunded actuarial accrued liability of 72% (as of October 1, 2008) will remain a serious threat to the long term viability of the Fund. In fact, according to our actuary, without significant future increases in contributions and with no change in the upward trend of benefit payments, it is projected that the Trust Fund will be completely depleted by 2022.
This serious financial condition is further aggravated by the current global financial crisis, as MISSA’s funds have declined significantly in value over the past two years. In FY 2008 alone, the market value of MISSA’s investments (except for MISC stocks and BOMI stocks and CDs) dropped by $8.5 million. It further declined by another $11.25 million in the first six months of FY 2009. Although stocks rebounded in the second half of the current fiscal year, it is not enough to recover such huge losses in the past.
Adding more financial burden to the Administration is the expected reduction in working hours and salaries of employees from a certain local government and another government corporation this coming fiscal year. These two employers have a combined workforce of 686 workers. This reduction in contributions is expected to exacerbate the imbalance resulting from the ever increasing benefit payments expected to reach $14.75 this coming fiscal year.
As we finalize our FY2010 budget, we are very much concerned with an impending cash deficit of at least $1.3 million which may leave us no other option but to dip into our Trust Funds, our first drawdown in nine (9) years. Such cash drawdown can only be avoided if the RMI Government will assist the Administration with a big amount of subsidy to ensure uninterrupted benefit payments in the coming months.
Citing the above reasons, I would like to once again solicit your kind support. It is our hope that we all have a unified position on this matter.
Lastly, let me take this opportunity to thank you and the RMI Government for your continuous support to MISSA.
Sincerely,
Saane K. Aho
MISSA Administrator