Senators Told No Magic Bullet for V.I. Government Pension

As senators and retirees sought softer ways to save the Government Employee Retirement System, GERS officials and actuaries during hearings Friday poured cold water on the notions of borrowing the money or including the private sector.

Since at least the late 1990s, every GERS administrator has urgently warned the V.I. Legislature that unfunded legislative mandates and early retirement incentives, combined with inadequate contribution rates for the pension levels, were bankrupting the system.

GERS itself proposed reforms three years ago. Last year, the governor’s pension reform task force issued a report itemizing a series of recommendations and options, including small increases to employee contributions, limits on early retirement and other tweaks to the system. (See related links below)

On Tuesday, GERS Administrator Austin Nibbs testified to the Committee of the Whole that, if nothing is done, the system will have sold off all its assets and be unable to meet retiree pension payments by 2022 – or less than eight years.

Gov. John deJongh Jr. submitted draft legislation with major reforms to the government’s pension system in March. [GERS Bill] It would take four major steps:
– asking employers and employees to contribute a larger amount toward pension benefits;
– reducing benefits already being received by 10 percent;
– increasing the age and years of service needed before retiring;
– suspend the annual cost of living increase;
– and changing the formula used to calculate benefits.

When several senators pressed for some detailed analysis of whether having the government float bonds to pay the pension plan would help, Leon "Rocky" Joyner of the Segal Group said it could help the system – if there is a real transfer of assets from the government to GERS and contributions are also increased – but not if the borrowing is not paid for and simply replaces the needed contribution increases.

"If the government says we want to put a bond together to pay the increased contributions, then all you have done is change the source of the contribution from one hand to the other. You really have not done a lot," Joyner said.

"However, if you have a lump sum of assets you can shift to the system," and the system does not need to pay it back, but the government finds a way to pay it, then it could help, according to Joyner.

Joyner testified the mix of cuts and contribution increases in the bill is one possible approach, and other blends are possible, but eliminating one part means that cuts or contribution hikes would have to be more severe elsewhere. "But doing nothing is not an option," he said. "In eight or 10 years you will only have the money coming into the system, which will pay roughly 35 to 40 percent of the benefits that are due. That is what we want to avoid at all costs. It would be devastating to the economy moving forward," he said.

Sen. Terrence "Positive" Nelson asked whether expanding GERS to provide pensions for the private sector could bring in more resources, while also helping more V.I. residents.

"We didn’t rule it out. We did a study," Nibbs said.

GERS General Counsel Cathy Smith testified there were several severe obstacles to any plan to bring private sector pensions into the GERS plan to shore it up, but it may be possible to have GERS manage a separate system for the private sector.

Public pensions are exempt from the federal Employee Retirement Income Security Act of 1974, but only if they have little to no private funds. "We cannot afford to lose our ERISA exempt status," she said, adding that if that status were lost, GERS would have to pay premiums into the Pension Benefit Guarantee Fund, "and the PBGF would shut us down," because GERS does not meet its funding ratio requirements.

Smith said that California is in the process of setting up a private pension plan that will be administered by the state pension system "and we are looking to see if it can be adopted in the territory." This would not help the GERS public pension fund, but could potentially help increase the availability of pensions in the private sector, she said.

Numerous retirees and retiree advocates – including retired coach Eurman Fahie, retiree representative and St. Croix Board of Elections Chairman Adelbert Bryan, St. Croix Government Retirees Inc. President Mary Moorhead – emphasized their opposition to any cuts to benefits to current retirees.

As on Tuesday, Nibbs emphasized that GERS also opposes cuts to current retirees and to vested members – out of concern for retirees and because there are serious legal obstacles to cutting benefits to existing retirees.

Moorhead also listed several actions her group endorsed, saying that first and foremost, "employee and employer’s contributions must be paid to GERS before the assignment of an annuity."

"Payment of annuity without the complete payment of the employers’ contributions is the reason the system has an unfunded liability now,” Moorhead said. “This is an action that cannot be allowed to continue. This is the reason SCGR Inc. has filed in court to keep the GERS and the governor from executing an agreement that will continue that dangerous act.”

“How does one claim to want to strengthen and sustain the pension system while repeatedly taking action that puts the system more at risk?” she asked.

Senate President Shawn-Michael Malone said senators would look at all the recommendations from testifiers at this week’s hearing and work up legislation incorporating some of them and some of the governor’s proposals. That legislation will then be vetted in the Finance Committee, amended and voted upon sometime this year, he said.

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