MISSA expects $1.2 million cash deficit in FY 2010
Unless an unexpected $1.2 million (at the least) in long-outstanding obligations is collected in the coming fiscal year or the RMI Government offers a cash subsidy to MISSA, the Administration stands to face the inevitable - a huge cash shortfall in the next few months. The last time the Administration made a drawdown from the Trust Fund was in 2000 when the administration of the Health Fund was still under MISSA. During the 1990’s, MISSA had been regularly making drawdowns from the Retirement Trust Fund.
Since FY2006, the combined amounts of benefits and administrative expenses paid out by MISSA exceeded its cash collections. Fortunately, other sources of revenue like interest and dividends were generated from local investments which enabled the Administration to maintain a positive cash flow, ensure uninterrupted benefit payments and even generate cash surpluses until FY2008. The extra cash were then subsequently invested.
The positive cash flow enjoyed by the Administration in recent years was also the result of MISSA’s intensified collection efforts and support from its legal counsel that resulted to the collection of long-outstanding receivables from certain delinquent employers. Likewise, the RMI Government, MalGov and the two main employers in Kwajalein (Chugach and KRS) have also provided MISSA with the much needed cash due to their consistent and on-time remittances.
To date, at least $10 million worth of long-outstanding obligations (not including Health Fund contributions) to MISSA remain unpaid. This amount includes interest and penalty charges that have accumulated over the years. Considering the urgency of the matter, the Administration is determined to seek all possible legal remedies to collect these past due accounts.
Unfortunately, as an aftermath of the current financial crisis, employers comprised mainly of local governments, government corporations and private entities in serious financial distress continue to face cash problems of their own that has resulted to the accumulation of their debts to MISSA.
Despite the failure of such employers to pay their past due and current quarters on time, the budgeted contributions of $12.95 million for FY 2009 was not only achieved, but surpassed by at least another $573 thousand (excluding accrual of $1.2 million as receivable from a certain local government). However, this translates to a slight increase of 0.39% in contributions when compared to FY 2008. MISSA’s contributions in FY 2008 totaled $13.47 million.
MISSA did not have any cash surplus at the end of 2009. However, it has enough cash on hand to pay-off its benefits until the next quarterly deadline in January 2010.
Imbalance between contributions and benefit payments/administrative expenses
Since 2006, MISSA had experienced an imbalance between contributions vis a vis benefit payments and administrative expenses. During this fiscal year, MISSA’s contributions totaled $11.44 million while the combined amounts of benefits paid and administrative expenses totaled $11.92 million.
The trend continued in the following year. In FY 2007, contributions reached $12.51 million but were not enough to cover benefit payments and administrative expenses amounting to $12.67 million.
In FYs 2008, MISSA’s benefit payments and administrative expenses totaled $13.46 million while contributions amounted to $13.47 million.
The burden of correcting this fund deficiency became more challenging in FY 2009 as MISSA’s total benefit payments reached $13.55 million (or 8.9% higher than the previous year) and administrative expenses totaled $971 thousand (despite it being 16.5% lower than the approved budget of $1.16 million). This imbalance translates to another deficit of $995 thousand which probably, will lead to MISSA drawing down one of its TCDs prematurely in 2010.
If the total benefit payments and administrative expenses from FYs 2006 to 2009 exceeded contributions, then why did MISSA still maintain a positive cash flow in the past four years?
What saved MISSA from a virtual cash crisis was its very aggressive collection campaign, coupled with payroll audits. With the help of the Administration’s legal counsel, certain employers owing millions of dollars to MISSA were ordered by the court to make periodic payments to MISSA. Likewise, dividends from local investments also provided MISSA with the much needed cash. Dividends and interest earned from investments outside the country are reinvested as well as interests from TCD’s at a local bank.