Without having obtained contributions from government, the pension plan that provides retirement benefits to former members of the Legislative Assembly would have covered those payments only through next month.
That’s according to a valuation of the Parliamentary Pension Plan completed on Jan. 1, 2011, but which was not made public in the House until last week.
Since that report was completed, both the previous and current governments have made additional contributions to the various public sector retirement funds, including plans for the judiciary, lawmakers and civil servants. Those annual contributions have totaled more than $10 million per year.
According to the 2011 valuation of the legislators pension fund, pension plan assets totaled $3.81 million, while past service liabilities were $16.72 million, creating what is known as an unfunded liability of $12.91 million over the 20-year period covered by retirement plan estimates.
“The fund continues to be severely underfunded,” the Parliamentary Pension Plan’s actuary Subramanian “Mani” Sundaresan wrote in the 2011 evaluation. “Assets allocated to the plan cover only 22 percent of the past service obligations.
“The plan’s assets are also insufficient to cover the benefits currently in payment. Without any future contributions, the assets are sufficient to cover only three years of benefit payments.”
The requirement for fully funding both sections of the legislators’ retirement plan was estimated at $1.87 million per year, or more than 96 percent of lawmakers’ current total pay.
For the lawmakers participating in the defined benefit portion of the retirement plan [monthly pension payments], the amount required to maintain the retirement system would have equaled 119 percent of payroll for lawmakers.
According to a pension plan breakdown, completed prior to the May 2013 general election that added three new Legislative Assembly seats to the House, there were 15 “active participants” in the Parliamentary Pension Plan.
A total of 46 lawmakers and former lawmakers received either current or deferred vested benefits at a cost of nearly $1.3 million.
“The plan’s financing and cash flow situation is very sensitive to contributions being made on a timely manner and also to the incidence of retirements,” Mr. Sundaresan noted.
Looking at public pensions from an overall perspective, the Cayman Islands government admitted last week that it would have to increase payments into the retirement system in order to keep it solvent. The increased payments would come from government coffers, not from additional salary contributions by government workers, according to Finance Minister Marco Archer. Currently, civil servants contribute 6 percent of their salary toward the retirement system and government contributes a matching 6 percent.
According to an actuarial review of Cayman’s three public retirement systems, projected liabilities were outpacing projected assets in the retirement funds by some $178.3 million in a 20-year period.
This means Caymans’ public sector retirement system would eventually run out of money if the country were to continue along the same path with pension financing.
However, Minister Archer said that is not going to happen. “[The unfunded liability] is not a reason for immediate concern because the government does have some time to address it.”