In what appears to be an unprecedented move for a public defined-benefit plan, a government employee pension plan has filed for bankruptcy protection. The Northern Mariana Island Retirement Fund (“Fund”) filed for Chapter 11 Bankruptcy protection in the U.S Bankruptcy Court for the Northern Mariana Islands on Tuesday.
The Fund was established in 1980 to provide retirement, disability, death and other benefits to employees of the Commonwealth of the Northern Mariana Islands, its autonomous agencies and public corporations, and their spouses and dependents. The Northern Mariana Islands is a U.S. Commonwealth made up of three major islands in the Western Pacific. Its capital is in Saipan.
According to the bankruptcy filing, the Fund holds $268.4 million in assets but faces $911 million in liabilities. According to a press release by the Fund, at current spending levels, the Fund could be depleted by September 2014. The Fund’s website states that the Fund will continue to issue payments for at least the next two months at the present level. The Fund indicated that the primary goal of the restructuring process is to adjust benefit payments to meet the current funding level so the Fund can make some level of payments to all plan beneficiaries for the remember of their lives.
According to a letter from the Fund to participants, it states that funding shortfall was caused in part by the commonwealth’s inability to make its share of contributions to the pension plan. The bankruptcy filing indicates that the problem was exacerbated by the generosity of the pension plan. While the Fund was designed to serve retirees and their spouses, the Fund has permitted the grandchildren and great-grandchildren of the retirees to receive benefits after the retiree passed away.