Overview:
Palau’s Senate is moving forward with a sweeping pension reform plan aimed at fixing a $304 million shortfall. The proposal would change how retirement benefits are calculated, increase contributions, and gradually raise the retirement age. Will this plan secure the future — or raise new concerns for workers?
Plan shifts to savings-style accounts, raises retirement age and contributions
By: Eoghan Olkeriil Ngirudelsang
NGERULMUD, Palau (April 6, 2026) — “The numbers are clear … now the only remaining step is the political will to see this through,” Sen. Mark Rudimch said as lawmakers advanced a major bill to reform Palau’s Civil Service Pension Plan.
The bill, introduced by Sen. Rukebai Inabo during the Senate’s third day of its sixth special session last Wednesday, would change the government pension system and open it to private sector workers on a voluntary basis.
Inabo said she introduced Senate Bill No. 12-64 after five years of research.
Palau’s current pension system is a “defined benefit” plan. Government workers pay 6% of their salary into the fund, and the government matches that amount. Retirees receive monthly payments based on how long they worked.
Under the current system, workers earn 2% of their salary for each year of service. For example, someone who worked 25 years would receive 50% of their highest salary, while someone who worked 20 years would receive 40%.
But Inabo said the system is facing serious financial problems.
An actuarial study in 2018 estimated the pension fund has an unfunded liability of $304 million. Each month, about $6 million comes into the fund from contributions, while about $10 million is paid out to retirees. This leaves a shortfall of $3 million to $4 million every month.
Because of this gap, the fund has been using its investments to cover costs. A report released March 31 last year showed total investments had dropped to $25.05 million — the lowest level on record.
“These numbers show why reform is urgent,” Inabo said.
The bill proposes moving to a “defined contribution” system for newer workers. Current retirees and employees hired before Oct. 1, 2021, would stay in the existing system. Workers hired on or after that date would join the new plan, creating a hybrid system.
Under the new system, each worker would have an individual retirement account, similar to a savings account. Both the employee’s contributions and the government’s share would go into that account, with annual statements provided.
The bill guarantees a minimum return of 3% per year on these accounts.
It also creates a general fund to support that minimum return. This fund would receive government appropriations, investment earnings and other funds, but it cannot hold more than 20% of the total value of all accounts. Any extra funds would be distributed to members based on their account balances.
The proposal increases employee contributions from 6% to 7% and raises the government match to 8%.
It also gradually raises the retirement age. Starting Jan. 1, 2027, the retirement age would increase to 61, then rise by one year every five years until reaching 65 by 2047.
Retirees would receive monthly payments, with an option to take a one-time lump sum of up to 30% of their account balance, subject to approval.
The bill also calls for stronger oversight, requiring rules similar to U.S. retirement laws to protect workers’ funds.
If implemented properly, Inabo said the reforms could eliminate the pension plan’s unfunded liability within 20 years.
The bill passed its first reading with support from all senators present.