GERS’s Financial Woes Not Due to Bad Investments, Administrator Says

The continuing decline in assets faced by the V.I. Government Employees’ Retirement System is not due to poor investment choices, but to the system’s steadily increasing unfunded liability, GERS Administrator Austin Nibbs reiterated on Thursday.

At GERS’s regular monthly board meeting, members of the board of trustees joined Nibbs in expressing frustration that public opinion in the territory sometimes appears to lay blame for the pension program’s deteriorating condition on its investments.

Nibbs has frequently testified before the Legislature that GERS’s investment portfolio cannot be counted on to rescue the system; instead, comprehensive reform and a large cash infusion from the central government are needed.

The total value of GERS’s assets as of January, not including its real estate and money owed to the system under its suspended loan program, is $751 million. This is a drop in slightly more than $100 million over one year.

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But GERS Investment Officer Bruce Thomas said that only 20 percent of that loss occurred due to changes to the system’s portfolio. The bulk of GERS’s asset decline, he said, is due to large withdrawals from the fund that were required to fulfill the system’s obligations to its members.

“The declines have largely been from paying benefits and expenses,” he said.

Thomas acknowledged that markets have been particularly volatile in recent months, but he said that losses taken by GERS’s portfolio have only exacerbated a structural problem. The ratio between active members paying into GERS and those collecting benefits has been decreasing for decades. It now stands at close to one to one.

“Typically I would say that although we have positive cash flow, the asset level has declined. It’s becoming very difficult for me to say even that because the market has been very rough as of late,” Thomas said.

In 2016, U.S. stocks have seen their worst start to a calendar year on record.

Although strong gains in its portfolio alone cannot realistically rescue GERS, Thomas said he worries about “a downward spiral” if the market does not recover in a significant way.

In September, Nibbs testified before the Legislature that “GERS does not have the ability to invest its way out of any downdrafts and needs additional sources of cash to navigate market tensions.”

One reliable investment has been GERS’s loan program, which was indefinitely suspended in August 2015 to increase liquidity. The loan program continues to provide an 8 percent return in the form of interest.

Thomas said, “The loans that we provided are not subject to the swings in the market, so those loans that are paying regular interest are stable and actually help the total asset level be more stable than if [they] were in the market.”

According to Nibbs, GERS’s main obstacle is that the plan sponsor simply has “not funded the system properly.”

A bill passed by the Legislature in December, but which Senate President Neville James has called for a veto of, called attention to at least one broken promise made to GERS.

The bill set aside $1.5 million in rum cover-over rebates for senators to distribute to nonprofits of their choosing. But an act passed in 2011 calls for using money from the same source to make direct contributions to GERS in the amount of $7 million every year after 2013. GERS has never received that money.

No actions were taken in the regular session of Thursday’s board meeting, but during executive session the board discussed its budget for Fiscal Year 2016; due diligence regarding a deal with developer Red Legacy LLC; an inspector general’s report; and matter related to its property Carambola Resort.

Present were trustees Wilbur Callender, Carol Callwood, Michael McDonald and Leona Smith. Edgar Ross arrived late to the meeting. Vincent Liger and Desmond Maynard were absent.

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