Prior Service


Introduction

In the last days of the war, Micronesians started working for the U.S. Military providing essential services to active duty soldiers, sailors and airmen, including care for the wounded and support for the men fighting in places like Iwo Jima and Okinawa. These people were paid very meager salaries, often as low as 9 cents an hour, with no employee benefits.

After the war ended, these men and women continued to work at low wages for the Department of the Navy and later the Department of the Interior, which took over as the administering authority for the Trust Territory of the Pacific Islands. By 1966, average wages had increased to just over 70 cents an hour, group life insurance was offered to all Micronesian employees and Workmen’s Compensation Insurance became available. At this time the idea of establishing a Social Security program began to attract serious interest.

In 1986, the United States Congress acknowledged a commitment on behalf of the United States Government to fund the Prior Service Benefit Program. At that time $8 million was appropriated for the initial capitalization of the Fund. As of Jan. 1, 1996, $15.5 million is needed to fund the remaining debt and complete the capitalization process.


Prior Service... how it all Began...

In 1965 the Trust Territory Government contacted the Chief Actuary of the U.S. Social Security Administration Robert J. Myers to develop a social security program for Micronesia. The Congress of Micronesia passed the Trust Territory Social Security law in 1967. This legislation became effective on July 1, 1968. Since that time it has developed into a substantial social insurance system assisting thousands of families across Micronesia with valuable retirement, survivor and disability benefits.

In recognition of the substantial services performed by Micronesians at very low wages without any rights to retirement, survivor or disability benefits, provisions were made in the law for a Prior Service Benefit Program. Micronesians with five or more years of service between Sept. 1, 1944 and the establishment of the region’s own social security system in 1968 were entitled to a supplemental, albeit small Prior Service benefit which augments benefits earned after July 1, 1968 under the new program.

The minimum benefit under this program is now $27 per month, with an average retirement benefit of approximately $50. These benefits have been maintained at artificially low levels and will not reflect cost of living adjustments until future funding is finalized.


U.S. Congress Approves Partial Funding

When the first benefits were paid under Prior Service in 1969, funds were made available by a U.S. Congressional appropriation within the annual Trust Territory Government Budget. In the early 1980s when the eventual demise of the Trust Territory Government was apparent, the Trust Territory Social Security Administration approached the U.S. Congress for future funding after the end of the trusteeship.

At that time, the question arose over whether this was a U.S. Government obligation. After considerable debate and a Congressional hearing, an $8 million appropriation was passed in P.L. 99-349 in 1986. Since this was $7 million short of an amended request, it was stated at the time that a future request would be expected if it was deemed necessary as noted in the House Congressional Record Volume 132, page 10, on June 19, 1986.


Final Funding is Needed

In 1995, details were concluded in certifying additional qualified members based on documentation executed prior to the beginning of the program, a requirement deemed necessary to assure the credibility of the group. The actuarial valuation was then completed and a report was issued in May 1996. It established that an additional $15.5 million appropriation is necessary to fund the program over its lifetime together with investment income. The Department of the Interior has suggested that the request be considered in the FY 1998 budget. Until the appropriation is made available, the $15.5 million will need to be adjusted for interest at a rate of 8% per annum beginning January 1, 1996.


Accountability of Funds

The assets of the Prior Service Trust Fund are audited by Deloitte & Touche on an annual basis in addition to monthly reviews, which are made available to representatives of the respective member governments, the fund actuary and the Department of the Interior. A comprehensive compliance audit was performed by the Department of the Interior Inspector General covering the period from 1987 through 1991, during which no accounting discrepancies were noted. The fund assets are invested by two money managers and reconciled by a custodial bank. The financial advisor, Merrill Lynch, assists with investment policy guidelines and adherence to investment objectives and furnishes a comprehensive quarterly investment performance review. The investment performance of the fund ranked in the top 10 percent of all similarly managed funds for the past 5-1/2 years through September 1996.


Legislative History

Trust Territory Code

The Trust Territory Social Security Act (73 TTC §s 1-205) became effective on July 1, 1968. §102 established the Prior Service Program.

102. Prior Service Credit – (1) All citizens of the Trust Territory who had not less than five years of employment by the Trust Territory government prior to July 1, 1968 shall be given prior service credit for establishment of insured status and determination of benefits for himself, his surviving spouse or dependent children as provided in this title.

(4) Employment by the government of the Trust Territory for prior service credits shall include district but not municipal employment and shall include employment by any United States administering department or agency. (Code 1970, Title 73, §102; P.L. 6-90 §1.) 73 TTC §102.

Congressional Record

With the termination of the United Nations Trusteeship Agreement the mechanism for funding Prior Service Benefits annually also came to a close. Subsequently, the Prior Service Administration requested a $15 million congressional appropriation. The U.S. Congress agreed to an initial $8 million appropriation and postponed final funding until complete, actuarial data could be compiled and reviewed.

As recorded in the Congressional Record, House of Representatives, two significant issues were resolved:

  • 1. The U.S. Government should continue to fund the program, ...Because this was a program created by the U.S. Government for the benefit of the people who had worked for the U.S. Government.. (dated July 25, 1985).
  • 2. A lump sum method of payment was selected with the appropriation of $8 million as the most reasonable funding method for the initial capitalization of the Trust Fund (dated June 19, 1986).

United States Code

Public Law 99-239 provides that those persons who, on Jan. 1, 1985 were eligible to receive payment under the Prior Service Benefits Program established within the Social Security System of the TTPI for their services for the U.S. Navy or for the TTPI Government prior to July 1, 1968, shall continue to receive such payments on and after the effective date of the Compact.

Testimony in 1984 before the Subcommittee on Public Lands and National Parks of the House Committee on Interior and Insular Affairs by the former Chief Actuary of the U.S. Social Security Administration confirmed the Subcommittee’s opinion that any obligations with respect to this program, which was created by the U.S. and TTPI Governments and has been financed by it to date, should continue to remain with the U.S. Government. The witness also made the points that the program is closed and therefore serves as a finite (and necessarily diminishing) number of people, and that the benefits provided are very meager, with the average payment running around $32 a month. (Reference: P.L. 99-239, §59(w), United States Code – Congressional and administrative news, 99th Congress – 1st Session 1985, Vol. 3.

Congress authorized the $8 million Prior Service Benefits appropriation pursuant to H.R. 4515 the “Urgent Supplemental Appropriation Act, 1986”. The Prior Service appropriation was introduced in a compromise amendment 136 following a House-Senate conference on H.R. 4515. (See H. Conf. Rep. 99-649 to accompany H.R. 4515 at 56-57 – H. Reports, U.S. Cong. Serial Set no. 13702, 1988 – reprinted in U.S. Cong. Rec. Vol. 132 at 14733, June 19, 1986.)

Amendment 136 which embodied the Prior Service appropriation became part of the Conference Report to which later both the Senate and House agreed. On July 2, 1986, President Reagan signed H.R. 4515.While the $8 million was $7 million less than the amount of the appropriation request, Congress did acknowledge an additional request would be forthcoming once the total amount to capitalize the fund was determined by the fund actuary.

"The managers have provided funds for capitalization of Prior Service Benefits Trust Fund… the managers are aware that the exact amount needed to provide for these payments over time has not been determined, and that the amount provided may need to be adjusted in the future."

- 99th U.S. Congress
2nd Session
House Conference Report
No. 99-649
June 19, 1986

Trust Agreement In 1986 the U.S. Congress decided on an $8 million lump sum payment as the most reasonable approach to provide for the initial capitalization of the Prior Service Trust Fund. At that time the managers agreed: “that the amount provided may need to be adjusted in the future.” (Reference: House Congressional Record, Vol. 132, page H10, June 19, 1986.)

The Fund actuary has determined that the amount of the “adjustment” is $15.5 million as of 1/1/96 or $17.1 million if paid on 4/1/97 and $18.4 million if paid on 4/1/98.

Funding History for the FSM

Prior Service Trust Fund Administration-FSM/Financial Data April 2006-September 2015

Calendar Year Allotment Received Benefits Paid Admin Fees Cash Balance To Date No. of Beneficiaries at end of year
April-Dec. 2006 $341,017.00 $241,696.18 $48,339.24 $50,981.58 882
2007 $344,514.00 $313,994.74 $62,798.95 $18,701.90 825
2008 $519,107.00 $292,963.81 $58,592.76 $186,252.32 785
2009 $445,052.00 $282,835.99 $56,567.20 $291,901.14 742
2010 $89,593.00 $271,406.61 $54,281.32 $55,806.20 705
2011 $272,797.00 $254,565.06 $50,913.01 $23,125.13 657
2012 $408,000.00 $236,671.40 $47,334.28 $147,119.45 567
2013 $360,100.00 $223,247.10 $44,649.42 $239,322.93 557
2014 $294,083.00 $308,195.09 $47,789.95 $177,420.89 509
Jan.-Sept. 2015 ~~~~~~~~~ $139,686.57 $27,937.31 9,797.01 465
~~~~~~~~~~ $3,074,263.00 $2,565,262.55 $499,203.44 $9,797.01