ACCORDING to media reports, the Spending Cuts Task Force wants to eliminate the existing statutory penalties on early retirement, describing this proposal as a "win-win" for everyone.

Under current law, the "penalty" for early retirement is a reduction of benefits by 3 percent for each year the early retiree is below the age of 60 or 65 (depending on when the early retiree joined the Retirement Fund) on the date of early retirement. The purpose of the 3 percent per year reduction is to lessen the impact on the Fund of the early retiree collecting for more years before he or she dies. However, the effects of removal of the penalty, and consequent increase in early retirements, would be a catastrophic increase in the unfunded liability, resulting from an immediate reduction of contributions and increase in payment of benefits – effects which would ripple into the future.

Moreover, while the "early out" program in 2000 blew a $100 million hole in the Fund, at least participants paid something for extra years of service credit. The newly proposed scheme, however, would have early retirees pay NOTHING for extra years of benefit payments.

The latest Government of Guam Retirement Fund Actuarial Study, the report dated Sept. 30, 2011, found that 43.49 percent of the Fund’s obligations were funded, down from 54.01 percent on Sept. 30, 2007. This compares unfavorably to the lowest ratio of assets to liabilities of any state, Rhode Island, at 49 percent.

Existing law already provides an early retirement option for those who are within five years of retiring "on years." Such people can retire short of working the number of years required for full retirement, but their annuity is reduced by 3 percent for every year they are under the age of 60 or 65 (depending on what year they started working for GovGuam) when they take early retirement.

It would be a simple matter to amend the law to provide for early retirement for those who are within five years of retiring "on age," in accordance with the same principle. Those who are within five years of age 60 could be allowed to retire early, but with their benefits reduced by 3 percent for every year they are under the age for full retirement "on age" at the time they retire.

Such an approach would prevent older workers who are laid off from going on welfare, but would not provide an incentive for a mass exodus of desirable workers from GovGuam. Last but not least, this approach would not damage the Fund.

Joseph A. Guthrie,
Guam