GSIS fund deficits, actual or actuarial?

Terror smote the hearts of our legislators when the Commission on Audit (COA) reported that the Government Service Insurance System (GSIS), supposedly awash with cash, had an actuarial deficit of P25 billion as of end-2001.

After hearing about inconveniences arising from actuarial deficits of the Social Security System and the pre-need and health maintenance organization (HMO) industries, the leaders of our bureaucracy had visions of not getting their retirement or separation pays, plus all other benefits that come from being a GSIS member.

To make matters worse, our government servants felt that the GSIS management fooled them. They were after all made to believe that GSIS was in the pink of health, especially after hearing from the buying binge of idle real properties (and a painting), and the continuing rise in reported annual net incomes.

Alarm bells for fund’s future inability

The COA report states that records disclosed by the state-run pension fund indicate actual reserves set up was lower than the actual reserve requirement. Thus, leading to the said deficit.

Not so, says the GSIS in a paid advertisement to explain its situation: It is under no financial deficit, but is merely experiencing an actuarial deficit. Further, the GSIS notes that this so-called actuarial deficit is not a reflection of its financial condition, nor of its profitability or liquidity or its capability to fund its present operations.

But when the GSIS admits that COA finding refers to the "insufficiency" of GSIS assets to meet the contingent liabilities of its members in the future, it’s like saying there’s no problem today, but we might experience something in the future. Talk about a "smoking gun."

We must remember that some pre-need companies recently experienced liquidity and even actual deficit problems because they had ignored actuarial problems a few years earlier. In the SSS’s case, at least it flagged its problem early on and addressed the pending crisis partially by convincing employers to pay the recently adjusted membership rates.

Does this mean that government agencies——as employers of GSIS’s 1.5 million members——should also agree to an increase? Not necessarily.

Corrective measures needed now

While doubts have been raised on its actuarial reserves, the GSIS after all continues to report an annual rise in net income. Last year, it made P28 billion in net revenues.

Part of the GSIS problem, however, is the need for delinquent government agencies to settle unpaid premiums, penalties and interests of its employees. This is estimated to amount to more than P14 billion already.

Then there is the issue of advances that GSIS made to the Employees Compensation Fund (ECF), one of the funds administered by the GSIS on behalf of the bureaucracy to provide accident and disability-related benefits for government employees.

Of the latest count, the advances have reached as much as P4 billion. The GSIS has threatened not to extend any new assistance to the ECF unless the National Government honors its previous advances. With only P30 a month set aside for every government salaried worker, the ECF definitely is not viable.

While the GSIS is not proposing an increase in membership contribution, it is asking for a more realistic counterpart contribution for the ECF, from P30 to P100 a month. But with the National Government operating on a very tight budget, the proposal does not seem acceptable.

Thinking ‘out of the box’

In fact, any initiative that means dipping into existing money from the National Treasury–including collecting unpaid premiums–will not fly at this time. And so innovative approaches are being considered.

The GSIS is proposing for the National Government to pay off its P14-billion obligation with a dacion en pago (payment-in-kind) arrangement involving real estate assets that the Bureau of Finance is considering selling. The GSIS is apparently keen on acquiring the National Bilibid Prison real estate asset.

GSIS has been engaged in land banking for the past year. It has agreed in principle to purchase Philippine National Railway’s 8.5-hectare Tutuban Center property, and has likewise proposed to buy the Nayong Pilipino theme park in Paranaque.

Investing overseas is another GSIS plan. It has proposed to buy properties where Philippine embassies and ambassadors’ residences are located. In turn, DFA will pay GSIS the rent on these properties. GSIS is already setting aside P5 billion to acquire properties in 20 countries across Europe, Asia and the US.

Avoid SSS and pre-need nightmares

While I am not a government employee, it is comforting to note that the COA report comes at a time when there is still the opportunity to correct any problems, and avoid irreparable damage to the government employee’s security system.

Losses incurred by bad investments in the BW Resources scam and other similar dud acquisitions are likely to be written off, and the problem of delinquent government agency remittances and inadequate ECF appropriations will not be solved soon.

The GSIS’s actuarial deficit may be "temporary" and not irreversible, but it’s never too late to take these seemingly insignificant issues with some zeal now. Waiting for tomorrow may see these issues turning into crisis. Let’s not have another SSS financial fiasco nor a pre-need industry type nightmare.

Prescriptions on agri sector ailments on TV

Better catch the last expository of "Isyung kalakalan at Iba Pa" on IBC-13 News (5 p.m. and 10:30 p.m., Monday to Friday) today on what ails the agri sector. Starting Monday next week, our discussions will focus on the salient features of "Plan 747" of Sec. Romulo Neri.

Should you wish to share any insights, write me at Link Edge, 4th Floor, 156 Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. If you wish to view the previous columns or telecasts of "Isyung Kalakalan at Iba Pa," you may visit my website at http://bizlinks.linkedge.biz.