Task Force Recommends Pension Reforms

A pension reform task force report released by Government House on Wednesday lays out several policy recommendations to push the V.I. Government Employee Retirement System toward solvency, including small increases to employee contributions, limits on early retirement and other tweaks to the system. Most of the report’s recommendations would require new legislation to implement.

A blunt 2011 U.S. Department of the Interior’s Office of the Inspector General report found the GERS had an unfunded liability of more than $1.4 billion and could default in less than two decades, absent major increases in contributions, reductions to early retirements and other changes.

Gov. John deJongh Jr.’s response to the report included newer data suggesting the system could stop being able to make payments much sooner, perhaps in little more than 10 years.

Problems with GERS solvency were well known before the Inspector General’s report and some changes were legislated in 2005, but not fully implemented. Since the report, the V.I. Legislature and GERS governing board have pointed to each other to take the unpopular step of making large increases in contributions and perhaps reductions in benefits.

In order for the retirement system to actually pay for itself and be solvent, the V.I. government’s own actuaries have found employees and employers would have to contribute 43.2 percent of payroll, according to the report. They are now only paying in 25.5 percent – not nearly enough to support the current benefits and growing population of retirees.

Exacerbating the problem is an increasing proportion of retirees to active employees. In past years, the system typically had more than 12,000 active members and about 5,400 retirees, for a ratio of 2.2 to one. But by 2010, government had shrunk so the system had about 10,800 active members and 7,500 retirees, "for a perilously low ratio" of 1.4 to one, according to the Inspector General report.

Since then, the unfunded liability has grown to $1.8 billion and the ratio of employees to beneficiaries has shrunk to a mere 1.1 to one, with 9,093 active and 8,256 retirees and beneficiaries, according to the task force report released this week.

The report recommends changes to retirement age, suspension of cost of living adjustments and increases in employee and employer contribution rates, as well as committing a portion of rum excise tax receipts to pay the increase in employer contributions.

Specifically what is proposed is that regular Tier II government employees would not be able to collect retirement until they have served at least 10 years and are at least 62 years old. Class III (hazardous duty) government employees would have to wait until age 55 with 25 years of service – or age 60 with 10 years of service – eliminating the current system allowing retiring at any age if they have served 20 years.

It also recommends freezing all cost of living adjustments for at least five years.

The report suggests two options for increasing contributions and adjusting benefit, both of which would have employer contributions increase by 2 percent and employee contributions by 1 percent, for the next several years, while reducing Tier I benefits by 10 percent.

It recommends legislation to increase judges’ contributions to 17 percent for new judges and increasing contributions for sitting judges over several years until they reach 17 percent.

The task force report also recommends legislation eliminating opportunities to “double dip” – taking pension payments while receiving a government salary, so that if a retiree works for the government for more than 75 days their pension will be suspended until they no longer work for the government.

In a letter to Senate President Shaun-Michael Malone, deJongh said the system can be put on the path to solvency and its unfunded liability gradually eliminated if the report’s recommendations are legislated into law. DeJongh said he would begin meeting with senators to craft specific legislation to address the report’s policy recommendations.

"If we succeed, we will strengthen and sustain the government of the Virgin Islands’ pension system for a generation. If we fail, the consequences will be felt by all," deJongh wrote.

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