Taiwan’s ICDB bank has approved the $10-million dollar loan requested to assist Palau’s Pension Plan according to Minister of Finance Elbuchel Sadang. Interest rate is 1% plus prime with 3 years grace period on payment.
The loan is already approved by the bank but it requires an approval through a joint resolution of both houses of Olbiil Era Kelulau.
Palau Civil Service Pension Plan, a government retirement plan for government employees has been losing money for many years with more benefits paid out each year then what is collected from employee and employer deductions.
Plan Administrator Elliot Udui yesterday said that in 2018 Pension Plan paid out $9.3 million in benefits. In 2019, it paid out $9.5 and this year it will pay out $9.8 million. In 2021, it expects to pay out over $10 million in benefits. Each year, it collects less than $2.4 million from its three sources of funds, PPEF, remittance tax and employer/employee contributions.
The Plan has been drawing down on the principle of it’s investments to subsidize the shortfall. National government has been appropriating funds each year to subsidize the shortfall as well.
As of October 1, 2019, the Pension Plan fund in the investment market was at $25.9 million. On March 4, 2020, it was at $28.6 million and due to COVID-19 impact, the fund dropped down to $23.2 million within two weeks of the same month. As of yesterday, the fund had risen to $30.4 million.
The loan proceeds is expected to be used to subsidize benefit payments and be invested as well to help strengthen the Fund for future payments.
Total number of beneficiaries currently receiving benefits is 1,640 people. President Remengesau said that these people depend on this source of income for their basic livelihood.
One of the proposals to make Pension Plan more self-sustaining, was to move it from a defined benefit system to defined contribution system and to include private sector in the plan. It will require a law to change the structure of the current Pension Fund system from defined benefit to defined contribution.
$10M loan approved for Pension Plan
