Future Economic Outlook
posted 01/06/10
Fiscal Year 2010 ended with MISSA facing one of the most challenging years in the past decade. Carrying forward from last fiscal year, the Administration faces an even more difficult FY 2011, when it expects a more substantial cash flow crisis than that experienced in FY 2010. Before the end of FY 2011, another $2.7 million is projected to be withdrawn from MISSA’s cash reserves. These cash shortfalls are evident in the Administration’s latest actuarial report which gave the Administration’s life expectancy of just a little more than 10 years if no reforms are enforced in the present social security system in the country.
MISSA’s approved budgeted revenues for FY 2011 stand at $12.05 million while projected benefit payments amount to $15.8 million. Another $937 thousand was earmarked for administrative expenses. This simple equation translates to a deficit of more than $4 million. The only way to reverse this gloomy scenario is if MISSA’s investments perform extremely well in FY 2011 or the RMI Government injects enough cash to help MISSA sustain its benefit programs without dipping into its trust funds. Although MISSA’s local investments have continually performed above par in past years, investments outside the country remains volatile and uncertain.
The Administration is now faced with the formidable task of continuing to provide social security benefits to its current beneficiaries but without any lifeline to cling to. Delinquency remains at critical level despite MISSA’s aggressive collection campaign and legal remedies. Contributions remain on a downward trend as unemployment lingers on. This situation is further exacerbated by massive migration to the United States by potential social security contributors while the labor force in Kwajalein and Ebeye continue to be threatened with lay-offs.
To lessen administrative costs and expenses, several cost cutting measures were adopted by the MISSA Board, management and staff since last fiscal year and the measures helped but only to a certain degree.
Fortunately, the President and his Cabinet acted decisively and created the Social Security Reform Commission (SSRC) which is represented both by the private and public sectors. The main objectives of the establishment of the SSRC are as follows:
- Assess the financial condition of the Retirement Fund in conjunction with a comprehensive review of parts IV to VIII of the Social Security Act of 1990, as amended (MIRC Title 49 Chapter 1). With specific focus on:
- Provide recommendations to the Cabinet on amendments to the Social Security Act, such recommendations will be accompanied with cost analysis of the changes and their financial impact on the Retirement Fund in the immediate and long term. With specific focus on:
a. Specific amendments to provisions on contributions, investments, benefits, offenses and penalties, etc.
- Feasibility study on converting younger workers to a defined contribution pland and design a new DC plan. With specific focus on:
a. Focus on a buy out scheme for younger workers (i.e. cashing out earned quarters from Retirement corpus and transferring dollar value in new DC plan)
b. Establish contribution & benefits scheme to new DC plan
c. Provide an impact study on the Retirement Fund if migration of younger workers to DC Plan occurs and remedical steps to prevent further losses in contributions to the Retirement Fund in order to ensure its viability
a. Sufficiency of 7% SS tax rate in light of steady growth of benefits & stagnant workforce;
b. Cost analysis of various benefit programs ( retirement, medical retirement, survivors) and lum sum;
c. Review soundness of investment strategy, advisors and potential forincreasing investments in the RMI (local vs offshore);
d. Work with MISSA management to suggest a possible percentage reduction in administrative expenses.
4. Public awareness compaign/engagement.
On the positive side, The Marshall Islands Government continued to be the main revenue driver in the past several years together with the Majuro Local Government which has paid $3.4 million since January 2008. The Kwajalein Atoll Local Government also signified its intention to lessen its debts to MISSA when it agreed to assign to the Administration 60% of the 40% on the 3% Immovable Property Tax in Kwajalein. The top 20 employers remained consistent in their quarterly remittances and with the aggressive legal assistance being provided by MISSA’s legal counsel, delinquency cases will continue to be filed against delinquent employers.