Trustees of the Government Employees Retirement System voted unanimously Thursday to not implement the loan program ordered by the V.I. Senate in a bill signed by Gov. Kenneth Mapp.
After an executive session Thursday, board members agreed that to exercise their fiduciary duty, they could not implement the popular program.
GERS stopped the loan program for retirees and active employees in August. Board members and investment analysts were concerned that any multi-year loans that are still outstanding after it sells off the rest of its assets would have to be sold at a steep discount, becoming a loss for the system. In May, the Senate ordered GERS to restart the program for one year.
Before the board went into executive session, GERS Administrator Austin Nibbs responded to comments from some Virgin Island government retirees and employees who have asked why GERS can’t earn more money on guaranteed 8 percent loans to locals than it can on stock market investments that are now earning zero interest.
“We don’t see return on the loans until the long term; our investment returns are instant,” Nibbs said.
He explained that recent returns on investments had been poor because of a sluggish Wall Street. Wall Street has been concerned recently with volatile oil prices and the possibility that Britain will vote to exit the European Common Market next week.
Not all retirees are interested in reviving the loan program. Mary Morehead, a retiree, said, “I support suspension of the program and the trustees upholding their fiduciary responsibility and terminating the program.”
She said GERS is a pension fund and that is what it should do; administer pensions.
GERS Investment Officer Bruce Thomas had told senators earlier this year that overall the loan program has been a good investment for the system, bringing in an approximately 8 percent return on investment. But given that GERS is headed rapidly towards insolvency, he said, it would be a risk to have 15 percent of assets, an unusually high amount for a single investment type, held in the form of loans.
Nibbs was blunter in his message to senators saying the system was going broke too fast and would have to sell off new loans at a sharp discount when it ran out of assets in a few years.
The reaction of Sen. Kenneth L. Gittens, a co-sponsor of the legislation, was swift. In a news release issued shortly after the GERS meeting, he accused the board of acting against the wishes of its own members, and ignoring the clear directive of the Senate.
"It’s unfortunate that the GERS board has decided to take such a hardline stance against its own members," Gittens wrote. "The same members whose contributions make up the system which allows it to exist and make further investments to further enhance the system’s financial viability. The administrator of the system has testified more than once that the loan program is a solid money making venture with guaranteed returns; so it’s difficult for me to understand the board’s position."
Gittens also pointed to a recent Inspector General’s report which said the GERS portfolio had included riskier investments than the loan program.
“Senators heard the cries of the people and weighed their options before they moved to create law that would force the Government Employees’ Retirement System to reinstate the loan program,” Gittens said in Thursday’s news release. “Laws were not put in place to be ignored or stepped on. For the GERS board members to ignore the law and continue with a unanimous vote against the reinstatement of the loan program shows a blatant disregard for the legislative mandate and calls for immediate action.”
In its own news release, issued after Thursday’s meeting, GERS said, “The trustees after reviewing the system’s liquidity, cash flow, obligations to the current and future annuitants, and the prudent investor rule with respect to alternative investments … determined that to reinstate the loan program at this time would breach their fiduciary responsibility to the fund and the members.”
In other action Thursday, the trustees approved a proposal by Jones Lang LaSalle to review, for an amount not to exceed $80,000, a proposal by Red Legacy. The proposal under review is one to make aesthetic improvements and renovations to Havensight Mall.