RECENTLY, the media has been filled with clamor regarding the dire effects Gov. Eddie "Pepsi" Calvo's early retirement proposals would have on the Retirement Fund, along with Pepsi's countervailing claims of the dire effect a failure to act would have on the General Fund. Pepsi claims that his proposals are the only way to avoid "inhumane" layoffs of 3,109 employees or alternatively, non-payment of tax refunds.

Pepsi ignores an obvious third alternative, a way which is both “humane” and would not destroy the Retirement Fund: mandatory retirement of those who have already served the 25 or 30 years required for full retirement, and, if necessary, mandatory retirement of those who are within five years of retiring "on years" or are within five years of retiring "on age."

Legislation should be enacted requiring retirement, starting with those who have already accumulated sufficient credited service for full retirement, and reaching down into the ranks of those who are within five years of retiring "on age" or "on years" if necessary to attain the savings required to balance the budget.

If legislation were enacted mandating retirement, it would not be necessary to offer employees an incentive to retire, namely the opportunity to "buy" five years of credited service incorporated in Pepsi's spending cuts bill, aka Bill 507-31.

Disastrous

The reason Pepsi's proposed "early retirement" would be disastrous for the Retirement Fund is because those buying additional years would not be required to pay upfront the cost of the augmented benefits garnered by the additional years of service. Instead, they would only be required to sign a promissory note, by which they could pay the cost of their additional benefits over five years. Likewise, no provision is made in the bill for the government paying the Retirement Fund upfront its share of the cost of the augmented benefits. However, those buying additional benefits would see their benefits augmented by the additional years immediately upon retirement, even though the cost of the retiree's share of the additional benefits would not be paid off for five years, and the government's unpaid share added to the unfunded liability and shoved off into the indefinite future.

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 require, if necessary to balance the budget, early retirement at a reduced annuity for those who are five years of retiring "on years."

Likewise, those within five years of retiring "on age" could also be required to retire early at a reduced annuity, if necessary, to balance the budget. Those who are five years of the age required by existing law to require "on age" 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.

Humane

The mandatory retirement approach would be humane because those required to retire, by virtue of their accumulation of years of credited service, would receive substantial retirement pay upon their mandatory retirement. Since those required to retire would be at the top of the pay scales, the total number of employees affected by mandatory retirement would be fewer than if layoffs occurred pursuant to the layoff procedures.

The Retirement Fund would not suffer the massive damage which would be visited upon it were early retirees granted five years of unfunded credited service. Although the payout of benefits would be increased if mandatory retirement was implemented, it is likely that under Pepsi's spending cuts bill, many of the same employees that would be affected by mandatory retirement would retire voluntarily. Were mandatory retirement implemented, those retiring employees' drain on the Fund would not be augmented by five years of unfunded credited service. What's more, the Fund's accumulating liabilities to these high-income employees would be capped.

The General Fund would also benefit because it would be relieved of the obligation to pay GovGuam's highest paid employees. Critical employees mandatorily retired could be re-hired, with their retirement benefits suspended, as is provided by existing law. Also pursuant to existing law, such re-hired critical employees would contribute to the Defined Contribution Plan (new plan), and not the Defined Benefit Plan (old plan), and hence would not accumulate any more accumulated service under the old plan.

Perhaps most important, mandatory retirement would clear the way for "young blood" to rise up in GovGuam, and doubtlessly clear out a lot of "dead wood." Preventing GovGuam from becoming sclerotic would likely be the greatest long-term benefit of mandatory retirement.

Joe Guthrie,
Guam and the Philippines