The Government Employees Retirement System has not been processing applications for retirement benefits for several months while the system wrestles with a requirement that might make some employees either accept a lower annuity than they expected or make good on missing contributions that should have been paid by the Virgin Islands government in years past, the GERS board learned Thursday.
GERS is supposed to pay a retirement annuity based on the amount of money contributed by the employee and the employer. Under previous practice, when a person applied for retirement his account was balanced and in cases where employer contributions – by the territorial government or one of its agencies – had been missed or skipped, GERS made a good faith payment of what the annuity should have been had the correct employer contributions been made.
People were getting the benefit of contributions that weren’t made, GERS Administrator Austin Nibbs explained.
That was supposed to have been stopped with passage of the GERS reform law in 2008. Under that legislation, when an employee was ready to retire the account would be summed up. If contributions, which are contractual matters between the government and the workers, had been missed and the amount invested insufficient, the employee would have two choices: accept a lower annual retirement payment or make the account good by paying the missing money the government was supposed to have paid.
Implementation of the reform provisions was delayed, Nibbs said, and the past practice continued.
The matter came to a head because GERS installed a new accounting system that drastically cuts the amount of paper going into and out of the office. Nibbs praised the system, calling it “a great accomplishment.”
But the new system also keeps close track of the accounts, and cannot be made to approve an annuity higher than is allowed based on the contributions actually made by both the worker and the employer.
It didn’t force a change, Nibbs said, but merely pointed out that the way the GERS had been doing business did not conform to the law.
“Everything the system does is based on the law,” Nibbs said.
The result has been what Board Chairman Raymond James called “a quagmire,” in which GERS employees have refrained from processing applications while the situation festered.
Shoran Sasso, member services director, worried that this put GERS in an untenable situation with “dire consequences.”
Once an application has been filed, GERS has 60 days to process it. Because the retirees may be forced to accept a lower annuity or make a lump sum payment, GERS has delayed filing the applications, thus preventing the 60-day clock from being triggered.
“We were instructed not to take anyone’s application until this matter has been resolved,” Sasso said, without naming who had issued that directive or how long the process has gone on.
Several board members suggested offering workers a low-interest loan that would be supported by the annuity payment. That way they would qualify for the higher annuity without having to find the cash to make a lump sum payment. They then could pursue getting restoration from the government, up to and including suing for the money the employer was required to, but failed to, contribute.
But board member Edgar Ross, a retired judge, said how to help the retirees qualify for higher benefits was not at issue. The only question that matters is following the law, he said.
“You must apply the law,” he said. “The worker can either pay the employer share or take a reduced annuity. That’s the law.”
“If that’s the consequences, that’s the consequences,” Ross said. “If there is an issue, we go forward, whether the member is upset or not.”
Board member Carver Farrow, speaking on a teleconference call from St. Thomas, expressed outrage that former employees, some who had retired and others who had been laid off, have been waiting for months for their money.
“Whatever they are entitled to, they need to get their checks,” he said “The bottom line is the person who has retired or been terminated. They need to get some money. You can’t live on air while we sit around and debate this.”
Ross said it’s time to forget about “past practices.”
“It is wrong and in violation of law,” he said. GERS has been “paying retirees an annuity when they have not collected the contributions for the government That practice will not continue.”
Thursday’s discussion came while the GERS board was holding its May meeting, which had been postponed from two weeks earlier when they had been unable to get a quorum. The board will hold its next meeting June 21 on St. Thomas and has its annual retreat the following week on St. John.
In other business, the GERS Board of Trustees:
– Learned that the system is continuing to hemorrhage money. For the month of April,
GERS took in a total of $15.8 million and paid out $23.4 million for a net deficit of $7.4 million. For the year to date, the system took in $85.9 million and disbursed $159.7 million, for a net deficit of $73.8 million. The board accepted the treasurer’s report without comment.
– Began discussing a letter received from the Water and Power Authority on its impasse with GERS over contributions, then decided to handle the matter in executive session.
The matter rose during discussion of correspondence. Nibbs began reading a letter from V.I. Water and Power Authority Executive Director Hugo Hodge dated May 2. The letter objected to the tone of an earlier letter from GERS, suggesting that negotiations are best handled without one side dictating terms to another, suggesting that GERS was taking a hard stance in its fight with the utility. But before Nibbs could read more than the opening paragraph, he was interrupted by board member Vincent Liger, who asked that the matter be deferred until the board’s executive session because it dealt with ongoing negotiations. The same action was taken on a May 15 letter from GERS to WAPA.
– Approved a 1 percent cost of living adjustment for retirees, to be paid on July 15. Nibbs had suggested that the adjustment be deferred for the second year in a row because the system’s finances are on shaky ground. But board members objected, saying the law which allows for the payment specifies that it is to help retirees deal with inflation, and makes no mention of whether GERS actually has the money to pay such an adjustment.
“The purpose is not to share our profits but to make sure our (members receiving annuities) facing an increased cost of living can still comfortably retire on the amount of their annuity,” Ross said. “We must recognize that inflation is killing all of us.”
– Decided against selling the old St. Croix GERS building to the Christiansted Federal Credit Union for $400,000. Nibbs said the building is worth more to the system as a source of rental income. The Department of Education has inquired about renting it for $80,000 a year. In ten years GERS would have generated twice the revenue as it would from a sale, and still have the building to continue renting.
“It’s not going anywhere,” Nibbs said. “Unless a hurricane knocks it down, it’ll be there for the next 40 years. Think about $80,000 for the next 40 years.”
