Senate Retirement Committee discusses solving funding shortage

Pago Pago, AMERICAN SAMOA — The Senate Retirement Committee — following confirmation hearings for two nominees to the ASG Employees Retirement Fund board of trustees — continued their discussions regarding the government-owned pension plan, after the witnesses were dismissed, with Gov. Togiola T.A. Tulafono raising question on the Fund’s detailed actuary report.

At the outset of the discussion, Senate President Tuaolo Manaia Fruean pointed out that due to COVID-19 pandemic, the off island meeting of the Fund board, didn’t occur as scheduled for last year. The meeting, which includes lawmakers and is usually held in Hawaii, is where financial advisors and officials provide a briefing on the Fund’s status.

The current law calls for 10% of the Fund’s money to be invested locally and Tuaolo — a member of the Fund’s board — said  there’s a pending proposal to increase the local investment percentage. And if it’s safe, hopefully the off-island meeting will be held this year.

Togiola pointed out that although the off-island meeting didn’t happen, there should still be an actuary report for the Fund provided to the Fono as required annually.

Previous government reports and testimony before Fono committees last year stated that the Fund pays out $25.3 million in benefits and refunds annually but it only brought in $10.8 million from contributions — $7.8 million from ASG and  $3.02 million from members — creating a shortfall of $14.5 million between contributions and payouts that was paid from the Fund’s investment earnings.

During the discussion, Togiola said in past years, investments have not been used to pay benefits for retirees as the Fund depends on the contributions from employer and employees.

And if investments are now used to provide funding to cover payouts including those to beneficiaries of the Fund, Togiola said the Fono should have information on specific investments being tapped by the Fund. And if any investments were liquidated to provide funding for the payouts that information should also be provided for the Fono.

The Fono approved last year a Senate bill, which sought to increase the contribution rate to the Fund. The current 11% contribution to the Fund — as dictated by law — breaks down to 8% from the employer and 3% by the employee. 

The Senate bill sought a “3% increase” to be added to the government’s contribution rate while the members contribution hikes from 3% to “5%”.

During the committee discussion, Togiola recalled this Senate measure last year to raise the contribution rate. He said the increase for employee contribution is a heavy burden on the current workforce.

According to Togiola, he had requested a detailed actuary report on this Senate bill, but the committee was provided with a one-page report, with “no basis of the opinion” provided in that one-page document.

He argued that a full actuary report would provide the financial status of the Fund and justification for a hike in contribution rate for employees, who should understand the reason for the increase.

Tuaolo responded that the Retirement Fund Office executive director is expected to return to the territory this month and will work on providing an actuary report. He informed senators that the Fund is doing well.

He explained that the current contribution rate has not changed since the Fund was established by law, at a time when the ASG workforce was not where it is right now with a high number of workers.

Outspoken Sen. Fonoti Tafa’ifa Aufata didn’t hold back on a direct query to Togiola, saying that she is very surprised with Togiola’s remarks and asked why Togiola didn’t address these problems when he was governor. That brought laugher from senators and others in the Senate gallery.

The Tualauta senator said that Togiola is now telling senators about all of these issues that as governor he didn’t address. This prompted more laugher from senators.

Togiola, with a smile on his face, responded that no changes were needed during his tenure because there was sufficient contribution to the Fund to cover the payouts.

Sen. Magalei Logovi’i informed senators that the actuary report from the Fund calls for an increase in the contribution rate and that the contribution rate needed is 22%, to reduce the “unfunded liability”, which means that there aren’t sufficient funds from the current contribution to pay the retirees.

He explained that the current total contribution of 11% was set in those days when salaries of employees were low, but now-a-days employees are retiring with high salaries.

Magalei — a former ASG Treasurer and former Fund board of trustees member — said off island investment is currently used to cover the payouts.

To meet the needed 22% contribution rate, Magalei referred to the Senate bill approved by the Fono last year increasing the contribution rate for both employer and employee that wasn’t signed by the governor.

And to help ease the burden on the ASG workforce, a separate Senate bill was introduced and approved by the Fono — and later signed into law by the governor — repealing the 2% wage tax, he said.

As previously reported by Samoa News, the governor told Fono leaders last November of not signing the bill to hike contribution rates, due to the lack of a funding source and that contributions were too high.

Magalei said during committee discussion, that he disagrees with the governor’s take on the lack of funding source for the bill. He explained that these are considered “fringe benefits” —retirement, workmen’s compensation, FICA, etc and such benefits do not need a funding source identified.

For example, he said if the U.S Social Security Administration decides to hike the FICA rate, ASG cannot tell the federal government to wait until there is a funding source.

And he objects to the governor’s stand to prorate the hike in contribution rate — spread it out over a period of time — because by such a time, the “unfunded liability” will be way too high and difficult to address.

Other senators also shared their view on the issue, with Togiola once again calling for a full-detailed actuary report including a report from the Fund’s financial advisors. Both reports, he said, will provide information on the status of investments and whether there are other avenues to increase investments to received increased returns or reduce the investment.

The committee was informed by Tuaolo that the Fund will work on a report for the Senate.