MEMBERS of the Defined Benefit Plan (Old Plan) need to go on FULL ALERT. The board of trustees of the Retirement Fund is proposing the MOTHER OF ALL RAIDS on the Retirement Fund.

On Oct. 5, in a letter to Sen. B.J. Cruz, the board of trustees proposed three actions which the government could take to reduce its deficit. One action, labeled Alternative 1(B), is enactment of Bill 453-31.

Bill 453-31 would allow members of the Defined Contribution Plan (New Plan) to elect to draw benefits from the Retirement Fund at age 65. Up to now, members of the Defined Contribution Plan were not entitled to draw benefits from the Retirement Fund at retirement. They were only allowed to draw down the amount they and the government had contributed into an account, similar to a 401(k) plan account, during their employment. Bill 453-31 allows existing Defined Contribution Plan members to opt to transfer out of the Defined Contribution Plan, and instead receive 1.75 percent of their salary at time of retirement multiplied by their number of years of service at age 65, FROM THE RETIREMENT FUND. New hires would also be covered by this scheme, to be called the Hybrid Plan.

Interestingly and significantly, none of the foregoing ugly details of Bill 453-31 were described in the letter the board of trustees of the Government of Guam Retirement Fund sent to Sen. B.J. Cruz – the letter that was released to the press and the public.

Bill 453-31 acknowledges that it would increase the unfunded liability of the Retirement Fund. To deal with this, it proposes to increase the amortization period of the Unfunded Liability by five years, and putatively commits the government to increase the government's contribution rate to the level that will pay off the increase in the Unfunded Liability resulting from the Hybrid Plan members drawing from the Retirement Fund. This belies the Fund’s contention, made in its Oct. 5 letter to Sen. B.J. Cruz, that Bill 453-31 would decrease the contribution rate by 2.4 percent of total payroll, which, according to the letter, “could realize a savings of $9.6 million.”

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. Go to http://www.pewstates.org/research/reports/the-widening-gap-update-85899398241.

Not only would a Hybrid Plan LOOT the Fund, it would turn it into a Ponzi scheme.

In exchange for payment of benefits from the Fund, existing Defined Contribution Plan members, who opt to join the Hybrid Plan, will be required to transfer the balance of their Defined Contribution accounts to the Retirement Fund. Due to the unfunded liability of the Fund, the money of Defined Contribution accounts will be used to pay benefits to current Defined Benefit retirees and OLDER Defined Contribution Plan members who opt to join the Hybrid Plan. When the YOUNGER, erstwhile Defined Contribution Plan members who opt to join the Hybrid Plan reach 65, they will find that all their money, as well as the rest of the Funds assets, will be exhausted. The funds will have been exhausted by drain of benefits paid to Defined Benefit Plan members, exacerbated by the additional drain on the Fund caused by payment of benefits out of the Fund to OLDER erstwhile Defined Contribution Plan members who opt to join the Hybrid Plan.

Needless to say, the additional drain on the Fund caused by the Hybrid Plan retirees will also redound to the disadvantage of current and future Defined Benefit Plan retirees, as the Fund will bite the dust sooner than it otherwise would have.

Joe Guthrie,
Guam and the Philippines