84.7 F
Charlotte Amalie
Sunday, June 23, 2024
HomeNewsArchivesUnfunded Liabilty Continues to Plague GERS

Unfunded Liabilty Continues to Plague GERS

July 12, 2006 – The Government Employees Retirement System's unfunded liability is officially more than $1 billion and is accruing approximately $83 million worth of interest per year, GERS Administrator Willis C. Todmann told senators at a budget hearing Wednesday.
Todmann added that the debt – which has been mounting since 1987 – is due to a number of factors, including the government's failure to pay off: outstanding contributions, $37 million worth of administrative expenses owed to the system and $161 million worth of unfunded Legislative mandates.
He further said current contribution rates are not sufficient to maintain the operations of the system's "generous" benefit structure and that GERS is paying out more in benefits than it is collecting in contributions. "Over the period of the last year and a half, the Benefits Division has paid out to retirees a significant amount of enhanced benefits for which appropriations or other funding has not been received from the government," Todmann explained.
He added that during the current fiscal year, GERS received nearly $82 million in employer and employee contributions and paid out more than $141 million in benefits – a net deficit of some $59 million.
To cover the difference, Todmann said the system has had to draw down funds from its investment portfolio and liquidate $46 million worth of assets – a figure he predicted would jump to $66 million within the next six months.
Since the Legislature stopped appropriating money in 1998 to fund the system's administrative costs, Todmann said GERS also has to expend "all" revenues generated within a given fiscal year to fund its operating budget. "This has been an additional constraint which hampers the ability of the system to grow itself out of the unfunded liability," he added.
In response, Sen. Neville James suggested the Legislature reinstate the system's annual appropriation. "Because really, $7 million is chickenfeed compared to a billion dollar liability," James said.
Despite a "moderate growth" in investment earnings and revenues generated through interest earned on loans issued by GERS, the number of active members paying into the system, along with the number of retirees and other beneficiaries continue to increase, Todmann said. To date, the system's overall membership is nearly 17,000.
Furthermore, since benefit payments continue to rise – reflecting an increase in wages – the system would not "be able to survive" another 10 years of escalating benefit expenditures without an increase in contributions, he added.
Todmann said GERS has also implemented a more "aggressive" cash management program and established a $10 million line of credit through Banco Popular to provide working capital to the system. Despite the efforts, Todmann said the government would have to take certain corrective measures to address the unfunded liability – including a $600 million cash infusion into the system, increasing contributions or issuing a pension obligation bond.
He added that the GERS Board of Trustees is currently working with the government's financial team to come up with the best solution to the unfunded liability problem.
Earlier this year, the board was mandated to submit its recommendations to the Legislature, according a provision included in the Omnibus Authorization Act, signed into law by Gov. Charles W. Turnbull in September. However, at a subsequent Senate meeting, members of the government's financial team said GERS does not have the authority to issue a pension obligation bond and that the government does not have the bonding capacity to issue $600 million worth of bonds.
During the meeting, Todmann said the two entities are also working on submitting to the Legislature a list of proposed amendments to the GERS Reform Act, signed into law late last year. "At some point in the future, the Office of the Governor will be submitting those amendments to the Legislature," Todmann said.
Concerned by Todmann's statement, senators said the amendments should have been submitted two months ago.
However, Sen. Louis P. Hill became more alarmed after Todmann said the board would be recommending that the Legislature continue to set contribution rates. "Since 1991, GERS has been trying to get the Senate to raise the level of contributions," he said. "And during that time, neither the Senate nor the governor has ever done it. So, in the Reform Act, we gave GERS the authority to raise the rates, since it was evident that the Senate didn't have the will to do so."
"Now you're saying that you want the Senate, in an election year, to increase the contribution rates? Come on – you guys are playing games," Hill added.
In response to further questions from Hill, Todmann said other amendments include a revised implementation schedule for the Tier II system of contributions, which offers staggered contribution rates for employees hired after Oct. 1.
Todmann wrapped up his presentation by summarizing future initiatives and listing his goals for the next five years. "I hope GERS would be fully solvent by then, and we would be continuing to offer our services. I hope that we would have a well-developed Web site, full staffing at our new complex on St. Croix, and a more diversified investment portfolio," he said.
Present during Wednesday's meeting were Sens. Craig W. Barshinger, Roosevelt C. David, Liston Davis, Pedro "Pete" Encarnacion, Juan Figueroa-Serville, Hill, James and Ronald E. Russell.
Sens. Norman Jn Baptiste and Usie R. Richards were absent.
Back Talk

Share your reaction to this news with other Source readers. Please include headline, your name and city and state/country or island where you reside.

Print Friendly, PDF & Email
Keeping our community informed is our top priority.
If you have a news tip to share, please call or text us at 340-228-8784.

Support local + independent journalism in the U.S. Virgin Islands

Unlike many news organizations, we haven't put up a paywall – we want to keep our journalism as accessible as we can. Our independent journalism costs time, money and hard work to keep you informed, but we do it because we believe that it matters. We know that informed communities are empowered ones. If you appreciate our reporting and want to help make our future more secure, please consider donating.

UPCOMING EVENTS