A “tough medicine” motion considered by the V.I. Government Employees Retirement System Board at its regular meeting Thursday served as a reminder to trustees and administration that GERS’s current practice of paying out pension benefits without adequate funding from its plan sponsor is a violation of V.I. law.
The motion, raised by the board’s vice chairman, Edgar Ross, proposed that GERS cease adding any new retirees to the system’s payroll without their benefits fully funded, in accordance with law, by both employer and employee contributions.
Although the motion failed after a three-way tie of yeas, nays and abstentions, Ross said he raised the issue to force a needed conversation.
For years the system has been “sitting on its backside” and “doing nothing for political reasons,” Ross said, even though the board and administration know that employer contributions coming from the V.I. government are far below actuarially determined amounts needed to ensure GERS’s long-term solvency.
Over the last 25 years the government has contributed nearly $1.3 billion less than GERS’s actuarially determined needs. Nine unfunded mandates passed by the 15th, 20th, 21st, 23rd and 24th Legislatures, including early retirement incentives, have accelerated the coming of the system’s insolvency, predicted to arrive by 2025, GERS says.
But GERS has still not stopped adding new retirees to its rolls and paying out benefits and will likely have to liquidate all of its assets over the next decade to meet its obligations.
“What we have been doing is paying the benefits and excusing the government. It’s time to stop it,” said Ross.
What that would mean is putting a halt on the enrollment of new retirees until GERS determines how much in employer contributions is missing in each individual case in order to meet the funding of his or her benefits. GERS would then need to bill the government and wait for payment before issuing benefits.
Some board members and GERS employees said that sounded like a nightmare scenario.
“I can see people waiting 10 years or more,” said system administrator Austin L. Nibbs, to which Ross simply replied, “Well.”
Ross, a retired judge, continued his refrain of “follow the law.”
Title 3 Chapter 27 Section 718 of the V.I. Code states that GERS “shall not pay benefits to an employee unless his and the employer’s contributions adequately finance benefits and related costs.” Legal counsel for the board agreed Thursday that the code is unambiguous on this subject.
Initially Ross said he raised the issue to address the fact that benefits for government employees who qualify for unfunded early retirement programs – also supposedly prevented by language in the V.I. Code, although they have continuously passed – are being partly subsidized by the contributions of other retirees.
It was soon clarified, however, that even standard retiree benefits are not being funded at the actuarially determined amount, and the effects of Ross’s motion, if passed, would be wide-ranging. In 2015, actuarially determined employer contributions needed to fund GERS was calculated at a little more than $200 million. The V.I. Government only made employer contributions of approximately $75 million.
Nibbs said several pieces of legislation have been introduced to find small amounts of government monies to address the problem of GERS’s unfunded liability, but he characterized most of those efforts as a “slap in the face.”
“We’ll take anything, but I don’t think these senators understand the problem being faced by the system,” he said.
Nibbs’ and trustees’ criticism of the Legislature’s piecemeal attempts at funding GERS included a bill signed into law in April that directs some owed tax monies from the Lonesome Dove Petroleum Co. to be paid to GERS. (See Related Links: Mapp Approves Lonesome Dove Funds for GERS, but Impact Limited)
Ross called the Lonesome Dove act “flawed legislation” that doesn’t provide what the GERS board was promised: a substantial long-term source for funding employer contributions to the retirement system.
He urged the board to send a strong message to the plan sponsor by halting new retirements until the government can pay the full amount of actuarially determined contributions.
“If we don’t do it, all we are doing is running the system into bankruptcy. I, for one, will not sit here and be personally liable for inaction by this board,” he said.
Ross and trustee Leona Smith voted in favor of the motion. Trustees Carol Callwood and Michael McDonald voted no. Trustee Vincent Liger and Board Chairman Wilbur Callender did not vote. Desmond Maynard was absent from the meeting.
When the motion failed, Ross said he hoped Nibbs would read the V.I. Code and “not be as chicken as members of the board,” which he said breached its fiduciary responsibility with its vote.
Regardless of the outcome of the motion, “it appears Mr. Nibbs must follow the law,” said Callender.