The Senate Ways & Means Committee’s letter to Social Security Administrator Chairman Hefflin Bai yesterday (see page 4 for full letter) refutes statements in the Island Times article on Social Security Retirement Fund’s financial position that said SSA Fund was in jeopardy.

“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,” stated Senator Inabo, referring to the article in Island Times November 29 issue of SSA Board removing its Administrator Ulai Teltull.

SSA Board had removed its Administrator after House of Delegates passed a joint resolution citing loss of confidence in SSA’s Chairperson and Administrator, calling for their removal.  Senate had not acted on the resolution.

The IT article reported that SSA Fund could collapse after ten years or benefits reduced at the current level of performance.

“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.”

Senate’s letter said it is “misleading and reckless to project that this poor performance will continue for the next ten years.”

The 2022 Economic Brief for the Republic of Palau, published June 2022, in its review of the Public Financial Institutions sector, said, “A recent actuarial evaluation of SS incorporating recent awards of unfunded benefits, find that the system was at risk of collapse by the end of the decade.”

While Senate is correct in quoting the Callund Consulting report from FY 2016 to FY2020, the latest reports indicate that Social Security’s position has declined after the COVID-19 pandemic impacted the economy.  SS Fund investment income has also declined compared to the pre-covid period, the number of employees that contributed to SS has dropped as a result of business closures and previous contributions have dropped from $19.5 million in 2020 to $17 million while the number of benefit payments has remained the same.  SSA Fund was valued at $112 million in 2020, now, it is at $88 million. 

In the Senate Ways & Means letter, Senator Inabo denied that the two supplemental benefits did not comply with the requirement for an actuarial study., “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,” asserted the OEK letter.

But at the Senate Committee on Ways and Means Public Hearing With Social Security on November 21, 2022, Senator Inabo acknowledged that “If every election or every other year someone proposes an increase in benefit adjustment without an actuarial study, it will be a reason for Social Security’s financial position to deteriorate.  In the end, we will have to adjust by lowering benefits because we can’t afford it.”

The 2022 Economic Brief Report confirmed, “Actuarial evaluation indicates SS is in a rapidly deteriorating financial position. Until the recent actuarial assessment, the conventional wisdom had been that the SS system was on an even, if not fragile, keel. The revised assumptions, especially concerning the need to incorporate the two remaining unfunded supplemental benefits into the evaluation coupled with a lower rate of return on investments, turned the outlook from cash-flow balance into a rapidly deteriorating financial position.”

The future sustainability of SSA depends on several factors, such as the implementation of recommended policies, recovery of the economy, better performance of investment markets, and an increase in minimum wages.  Economic recovery looks like it’s further delayed, with now projections for 2025.  Social Security proposed reforms and minimum wage bills are seeing no traction in both houses of OEK.

The forecasted collapse of the SS Fund was why the working group convened in 2021 to find solutions for the sustainability of SS Fund. The current economic climate, decisions by SSA Board and OEK’s actions have a substantial impact on the future well-being SSA Fund and its beneficiaries.

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