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HomeNewsArchivesLegislature Must Nearly Double Deductions for GERS, CFO Says

Legislature Must Nearly Double Deductions for GERS, CFO Says

Aug. 2, 2007 — To be able to pay retiree benefits at the levels promised to all government employees, the Government Employees’ Retirement System needs the Legislature to increase deductions from 23 percent to 43 percent of total government payroll, a GERS official said Thursday.
“The current … contributions are not sufficient tine to meet the cost of funding the system,” said acting GERS Chief Financial Officer Grasilda Hodge-Dobbins, testifying before the Senate Finance Committee. “The system’s estimated unfunded accrued liability has increased … and is projected to be $1,162,000,000 for the … year ending Sept. 30, 2006.”
Those figures are the most recent audited figures. A forensic audit of GERS finances is underway at present.
Already the system pays out more each year than it takes in, forcing it to sell off assets in its portfolio, reducing its holdings. In 2005 GERS took in $80.7 million and paid out $141.4 million, losing $60.6 million, Dobbins said. For 2006 the deficit is tentatively put at $56.5 million, and the trend will continue into the future unless some action is taken regarding either benefits given out or contributions taken in.
The contribution rate is set by the Legislature at 23 percent, Dobbins said.
“The current rates are not sufficient to meet the 43 percent of payroll cost of the system, which is the amount necessary to maintain the operations of our ‘generous’ retirement benefit structure,” she said. “To meet the full actuarial costs, the … system would have to receive an additional contribution of 20 percent of payroll from some combination of member or employer-contribution resources immediately.”
GERS will fail if the Legislature doesn’t make changes, Dobbins said.
“The system cannot survive another 10 years of escalating benefit expenditures without the respective concurrent incremental contribution increases,” she said.
Dobbins attributed the fast-growing unfunded liability to 22 years of unfunded mandates. Starting in 1983, she said, a series of legislative acts have offered early retirement packages for education and other personnel while increasing benefits for retirees. These, she said, have already resulted in the payment of $161 million in unfunded benefits, and over time the amount will balloon. The government owes GERS another $37 million in uncompensated administrative costs, Dobbins said.
“This debt cannot be forgiven or dismissed without payment to the fund,” she said.
Long-term employment and demographic trends are adding to the problem.
“Overall membership in the system exceeds 17,370,” Dobbins said. “This includes 10,543 active members and 6,827 retirees, beneficiaries and special pensioners. …. Both of these numbers continue to increase, with the number of retirees increasing more rapidly than the active members.”
This problem partly echoes the general demographic problems plaguing federal Social Security as well; as the ratio of retirees to workers increases, each worker has to pay more to finance those receiving benefits.
Some senators expressed grave concern, asking if Gov. John deJongh Jr. had communicated a plan to address the situation.
“The more time goes by, the more difficult and critical this becomes,” Sen. Basil Ottley said. “I am very troubled by the lack of urgency the new administration is showing at this time. There have been some meetings with your people to discuss this, am I correct?”
Dobbins said they had been in communication with the governor, but she could not speak on behalf of the GERS board of directors on the issue.
Sen. Neville James suggested a government takeover of the GERS as a way of increasing pressure to address the problem.
“The government needs to take back responsibility for running GERS,” James said. “Why? Because the government is creating the hemorrhaging that is destroying the system. … These early-retirement packages have created a serious problem, correct?”
Sen. Terrence “Positive” Nelson, the committee chairman, suggested that paying off the total governmental obligation of $400 million in retroactive pay for several categories of government employees would infuse cash into the GERS system, too.
“I’d like to say to the media — if we pay the retro owed, GERS would receive some $90 million of that,” Nelson said.
On the up side, the GERS is making an 11.26-percent rate of return on its investment portfolio, a very solid showing. The GERS assets totaled $1.5 billion as of September 2006.
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