Dec 10, 2008

By Bill Jayes
The Kaselehlie Press

Palikir, Pohnpei, FSM - A law that would change FSM Social Security regulations passed its first reading in Congress chambers in Palikir on December 4, 2008, the last day of the fifth special session. The bill includes substantial changes that will mean a reduction of benefits, changes in who is eligible for benefits and an increase in the tax rate.

"Congress has been discussing changes we recommended to them more than two years ago," said Alexander Narruhn, Administrator of FSM's Social Security Administration. "The bill has changed a lot in those two years."

In public hearings on the bill in each of the FSM States, as well as in Guam and Hawaii, Narruhn presented a power point presentation that showed the outgoing benefit payments are slowly but steadily eclipsing contributions to the program. In 2004 the program carried a surplus of $42,423. By 2007 it showed a deficit of over $1.8 million.

His presentation showed that of 2283 active retirement beneficiaries, 2,118 retirees have collected more in benefits than they had contributed to the program. Narruhn says that the program is only 16% funded and has a $219.5 million unfunded accrued liability. Narruhn said in his presentation that FSMSSA is trying to increase the funding of the program though contributions from 16% to 20 or 30 percent through the proposed bill

"It seems like we have two options. We need to decide if we want to get re-elected or salvage the program," said Pohnpei's Senator Neth of the Social Security bill during an off journal discussion. He said he was only joking. Still, his comment pointed out that the issue is a political hot potato and Senators are moving very carefully on the bill. With a stern countenance Speaker Figir said that Congress must work very hard to educate the people about the problems that Social Security faces and what the program really is. He said that the people need to understand that the program is not a Government handout. Pohnpei's Senator Primo said it seems like Congress is changing the rules of the game in the middle of the game. What people really want Congress to do is to give the system a big cash injection but that would only solve SSA's problems for a short term, he said.

After the bill passed its first reading Yap's Senator Urusemal, who is chairman of the Health, Education, and Social Affairs standing committee that reviewed the bill said that he hoped that he could gather all of his committee members for one more swing through all of the states for public comment and possible improvement on the bill before the second reading at the next regular session of Congress in January. In the event that is not possible he challenged all of the Senators to hold public hearings in their home states. He said that the reform is a "very major undertaking" and that in spite of the many meetings about the bill there may still be room for improvement and possible changes before the second reading.

The HESA Standing Committee Report says: "The overall intent of these proposed amendments to Title 53 of the FSM Code is to increase the level of the FSMSSA's collections and decrease the program's unfunded liabilities. Based on communications from the Administrator of the FSMSSA to the Chairman of the Committee on HESA and the Speaker, there has been an increase in benefit payments and a decrease in collections. Some contributing factors are: (1) recent governmental reforms in the States of Chuuk and Kosrae, (2) the closure of some major businesses in the FSM; for instance, the Garment Factory in the State of Yap, and (3) some beneficiaries have exceeded their contributions yet continue to receive benefit payments. And to fulfill its mandated responsibility, the FSMSSA is currently subsidizing the monthly benefits it pays out with revenue from its Trust Fund, a practice that would, in the long run, incapacitate the viability of the program.

Senators, during off journal discussion said that the move of Congress to reduce the mandatory retirement age from 65 to 60 may have been a mistake and probably contributed to the problem.

In addition to significant changes in regulations as to who is eligible for Social Security the new bill would increase penalties on employers who intentionally fail to pay the tax. An employer who fails to pay the tax would be subject to misdemeanor criminal charges and could be jailed for not more than one year, fined not more than $2000 or both. Further, if the result of the employer's failure to pay the tax they have withheld from an employee's paycheck results in the employee being ineligible for Social Security benefits the employee would otherwise have been entitled to from the Social Security Administration, the employer will be directly responsible for all of the benefits that the employee would have received. The FSMSSA can seek repayment from the employer of all benefits paid to the employee as a result of failure to pay.

The bill also identifies the Chief Financial Officer of municipal organizations, states of the FSM or any agencies of any those as the individual within the organization who would be liable for any FSMSSA tax payment enforcement including any possible criminal proceedings.

Maybe we should take off the earnings cap and just tax anything and everything that is wages, said Chairman Urusemal during an off-journal brainstorming session on the plight of Social Security.