December 1, 2022
Mr. Heflin Bai Chairman
Board of Directors
Social Security Administration Koror, Republic of Palau 96940
RE: November 29 Article in the Island Times
Chairman Bai:
Congratulations and thank you for assuming the Chairmanship of the SSA Board of Directors. As you know the Olbiil Era Kelulau was forced to sue the Social Security Administration as a last resort, after giving a clear written warning, to ensure that seniors and disabled people continue to receive their legally mandated benefits. Rest assured that the Olbiil Era Kelulau continues to support the need for a strong and healthy retirement system, and our doors will always be open to you and the Board for open and frank discussion.
Because of the COVID-19 pandemic, 2021 and 2022 have been some of the most economically difficult years in recent history. Every government in the world has dipped into its savings and reserves to maintain, as much as possible, the living standards for its community. Thank you for your understanding, and for working with the Congress to provide what we can and must do for our people.
As Chairperson of the Senate Committee on Ways & Means and Financial Matters, it has become necessary to clarify and correct certain comments that appeared in the Island Times on November 29. Democracy depends on correct information, and the public must be presented with complete and correct facts to inform their opinions. A congenial and cooperative relationship between the Olbiil Era Kelulau and the Social Security Administration will be vital going forward, and so it is hoped we can agree upon the facts relating to Social Security.
As a preliminary matter, while the House of Delegates had passed a joint resolution expressing lack of confidence in former Chairperson Ngiruchelbad and former Administrator Teltull, that resolution is still pending in the Senate. The Senate could have chosen to pass it, to amend it, or to decline to pass it. Obviously, both houses of the Olbiil Era Kelulau had grave concerns regarding the decision to ignore the law, but the positions of all twelve senators are nuanced, and I will not speculate as to whether the resolution would have been passed, amended, or otherwise acted upon.
The statement that the two supplemental benefits in question did not comply with the requirement for an actuarial study is simply not true. As our attorney explained to the court, the Olbiil Era Kelulau treats financial issues with the utmost seriousness, and we had considered the recent actuarial studies performed by Callund Consulting and audited financial reports performed by Deloitte when the laws in question were passed.
The Island Times article states:
“SSA currently pays out $28 million in benefits annually and receives $17 million from contributions. This means it has to pull out a little over $10 million from the invested Retirement Funds to cover the difference. The SSA Retirement Fund investment is around $88 million. So pulling out $10 million annually means the fund will either collapse in 10 years or the retirees, after ten years, will only be getting reduced benefits based on what SSA receives from contributions, which this year is $17 million.”
The statement that Social Security runs a $10 million-dollar annual deficit is extremely misleading. Between Fiscal Year 2016 and Fiscal Year 2020 (ending on September 30, 2020), the Social Security Trust Fund grew every year, according to the Callund Consulting report and the audited financial reports. While those years did include supplemental contributions from the Olbiil Era Kelulau, the Fund grew by more than the supplemental contributions.
For example, the SSA’s Audited Financial Report for FY2020 and Callund Actuarial Study and Assessment show total payment going into the Fund that year were $29.9 million ($19.5 million contributions, investment income $7.7 million and Supplemental benefit appropriation from OEK $2.7 million). Total benefit payments, per the same reports, were $24.8 million; together with a $1.4 million Administration Expense, the fund paid out a total of $26.2 million. Excess cash in FY2020 was $3.7 million, which per the reports was invested in the Fund, so that the Fund Balance increased to $111.8 million. This complete financial information shows the true picture: there is no reason to believe the fund will collapse in ten years and it is false to suggest it. While the Olbiil Era Kelulau has not yet received financial information for FY 2021 and FY 2022, these years were obviously impacted significantly by the peak of the COVID-19 pandemic, and it would be misleading and reckless to project that this poor performance will continue for the next ten years.
While COVID-19 has greatly disrupted both the domestic and international economies, this disruption will not continue forever. If the Social Security Board focuses its investment strategy on providing returns for its beneficiaries, it seems very likely that returns on investment plus payroll contributions will continue to exceed payment of benefits and other obligations. While the Olbiil Era Kelulau will continue to monitor the situation, at the present time it is difficult to justify taking more money out of local economy to place into foreign investments. Every dollar taken out of an employee’s paycheck or appropriated by the Olbiil Era Kelulau that goes into the SSA Fund is a dollar that leaves our recovering economy.
The laws governing Social Security mandate the Social Security Administration’s dual responsibilities: both investing the SSA Fund in the highest return, lowest risk investments permitted by law, and efficiently distributing benefits to beneficiaries as determined by law. In light of these mandates, the recent
move to put half of the assets of the SSA Fund investment into “Climate Transition” investments, investments that may both underperform the returns of the broader market and offer unacceptable risks, appears to be compromising the expected 7% return on investment. Such a large investment also adds risk into the system by reducing investment diversity. Chairman Bai, please take time to review whether added risk into the fund will provide commensurate returns, and whether it has been done with best interests of beneficiaries in mind. Additionally, the Social Security Administration should identify cost-saving measures to ensure that its costs of administration do not continue to rise. You are encouraged to select a new administrator who is committed to these policy goals.
Most Sincerely,
/s/
Senator Rukebai Kikuo Inabo
Chairperson
Committee on Wats & Means and Financial Matters
CC: All Senators and All Delegates of the 11th OEK.
CC: Island Times -Leilani Reklai
Attachment: Schedule C- Callund Consulting Actuarial Study & Assessment.