Palau Social Security Administration, the largest retirement plan for the Republic will run out of funds to pay benefits in 2031 if no changes are made to the current system reported SSA Administrator Ulai Teltull at the Economic Symposium last week.
The fund was collecting 21 million from contributions each year but paying 27 million in benefits, creating a shortfall of 6 million dollars. SSA has been drawing down the 6 million from its investments to cover the shortfall but as Ms. Teltull reported, the earnings from SSA investments have been positive recently and have been able to cover the shortfall but this is not guaranteed to always be happening in the future. As of FY 2020, SSA investments stood at 112 million.
With the support of the Asian Development and USA Graduate School, a think-tank group, a cross-section of the community, met to discuss solutions to keeping Social Security Administration from going bankrupt.
The group looked at ways to keep the system self-sustainable, fair, and progressive. The group agreed that the new way forward should revalue prior contributions to include and adjust to include the inflation rate. It should also adjust benefits going forward to include also inflation factors. The new policy will have a built-in grandfather clause.
Social Security to achieve longevity, to reach the year 2057, the new pathway proposed includes 2.0% benefit indexation, 9% contribution rate, $4,000 base benefit, different percentage applies to different contribution levels (scaling factor), a retirement age of 65, 35 years of work for full work benefit and 10% PGST rate.
Right now, the base rate (rate for the lowest benefit paid out) is $348 a month ($198 plus $150), a total of $4,176. Minister Ngirai Tmetuch said that wanted to keep the base rate as close to what it is today at $4,000. This is the lowest rate based on the lowest contribution level. The amount goes up using the scaling factor, a percentage applied to the amount bracket that a person contributed.
According to the report, if these proposed changes are made, the Social Security fund will continue until the year 2057, and that the investment will not be depleted.
To affect these changes, the Social Security Administration Act will need to be amended.