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GERS Chief Raises Alarm On Unfunded Liability

Aug. 9, 2008 — Repeating a plea made at every opportunity for several years now, Austin Nibbs, administrator of the Government Employee Retirement System, raised the alarm about the GERS' unfunded liability during budget hearings Friday.
"Currently employer contributions are determined by the Legislature," Nibbs said. "This is the single most detrimental feature of the plan design that handicaps growth in the fund."
The system was designed to be funded on an actuarial reserve basis, meaning the money for an employee's retirement is supposed to be funded during his or her employment before retiring.
"The current regular benefit contributions by the central government have not kept pace with the percentage required by the actuarial reserve method," Nibbs said. "In addition, no regular payments are being made by the plan sponsor on the $1.1 billion unfunded liability. The system cannot survive another 10 years of escalating benefit expenditures without … a contribution increase."
The GERS portfolio of investments had a net value of $1.6 billion. But to pay all existing and expected pensions, the system will need another $1.1 billion on top of that. Nibbs specified a series of legislative acts from 1983 through 2001 that raised retirement benefits and implemented early-retirement benefits without increasing contributions into the GERS. Unpaid GERS administrative expenses from 1987 to 1998 account for some $37 million of the unfunded liability too, he said.
"We need a significant infusion of cash," Nibbs said when asked by Sen. Terrence "Positive" Nelson what the system needed.
Other areas such as New York, Florida and Washington, D.C. have dealt with a similar unfunded liability and were able to turn around their deficits through a combination of tactics, Nibbs said. Those include having the plan sponsor, who in this case is the V.I. Government:
– float pension obligation bonds;
– make large lump sum payments;
– pay the entire annual difference between what is put into the fund and what is spent;
– adjust contribution rates so they match increasing levels of benefits.
The Legislature could also eliminate unfunded benefit increases and possibly allow the GERS to make less secure but potentially more lucrative investments, Nibbs said.
Since 1998, the GERS has financed its own operations out of its portfolio of investments. Nibbs did not present 2009 expense projections, but did outline the current fiscal 2008 expenditures. From Oct. 2007 to June 30 2008, GERS spent $10 million for administrative expenses. Of that, $3.3 million was for salaries and another $1 million for benefits. $1 million was for investment advice, payroll processing and other contracted professional services.
Gov. John deJongh, Jr.'s budget recommends an appropriation of $11.1 million, of which $10 million is to be a lump sum payment on the unfunded liability and the rest past due contributions from the Department of Justice and the Division of Personnel.
No votes were taken. Nelson was present. Absent were Sens. Liston Davis, Carlton "Ital" Dowe, Neville James, Ronald Russell, Juan Figueroa-Serville and James Weber III.
Supervisor of Elections John Abramson defended a fiscal year 2009 election system budget of $1.6 million, a 2.4 percent increase over 2008. He also asked the Legislature to appropriate an additional $100,000 not in 2009 budget, but the current 2008 budget, to help defray the costs of the Legislature's upcoming party primaries.
"As of today, no funds have been appropriated for the implementation of the September 13 2008 primary election," Abramson said. Abramson asked both for an additional appropriation of $100,000 and legislative authorization to spend $112,000 they have in hand.
The elections system of the Virgin Islands has four divisions; the Joint Board of Elections, the St. Croix District Board of Elections, the St. Thomas-St. John District Board of Elections and the Office of the Supervisor of Elections. No votes were taken. Present were Nelson and Neville James. Absent were Sens. Liston Davis, Carlton "Ital" Dowe, Ronald Russell, Juan Figueroa-Serville and James Weber III.
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