GERS: Judge Seeks a Solution for Underfunded Pension System

The future of the Government Employees Retirement System may require intervention by the Legislature, a federal judge said Thursday. The judge presiding over a hearing held Thursday in U.S. District Court told lawyers representing the government and the pension system to submit briefs to help him prepare a legal opinion.

Five witnesses addressed different aspects of the $1.3 billion dollar deficit that threatens to send the GERS into insolvency by 2024. A 1984 consent decree case was reactivated by order of the court a few months ago after lapsed employer contributions mounted to $43 million dollars in 2016.

But after hearing testimony over the course of four hours District Court Judge Curtis Gomez said neither the government nor the GERS legal team had made persuasive arguments addressing all aspects of the case.

“What we have here is a gap,” Gomez said.

Pension system lawyers felt the government should be compelled to pay prior obligations ahead of other expenditures. But the government team, led by Assistant Attorney General Carol Thomas-Jacobs, asked where in the ’84 consent decree was the government directed to make employer contributions to the fund.

Some mechanism would have to be devised to clarify the process. The result, Gomez said, would be a “mutually agreeable, enforceable remedy.”

For some retirees, a solution could not come soon enough. GERS Director of Member Services Shoran Sasso testified that there are 350 retirees who are waiting to receive payments because of underfunded pensions. One has been waiting since 2012. Sasso said most of those who were left with insufficient funds in their government retirement accounts worked in semi-autonomous agencies.

That changed in 2016, she said. That was the year that retirees from central government agencies began presenting petitions to collect monthly payments. Those applications were delayed for the same reason as the semi-autonomous retirees.

“I have a retirement pending as far back as 2012,” Sasso said. “It’s not just the semi-autonomous agencies.”

Of those who retired in 2018, four are receiving annuities, she said. There are 85 people on St. Croix and 126 on St. Thomas who are not. Retirees are being told they have between eight months and one year to wait before payments appear.

The financial strain leads to many tearful calls to Sasso’s office. There also are some angry calls, filled with harsh language.

It’s very stressful on the staff, she said, adding that she tries to answer many such calls herself.

“People call up. They cry. They say they can’t send their children to college. They can’t pay their bills, they can’t pay their health insurance. They’re losing the house. They’re losing their car,” Sasso said.

Close to half a dozen witnesses testified at Thursday’s evidentiary hearing. Finance Commissioner Vladimier Collens tried to assure the court that paying into the pension fund has always been a priority for the government.

That statement prompted the judge to ask how long the commissioner thought that would last. How long would it be, before a new priority came along and GERS became less than a top priority?

GERS Executive Director Austin Nibbs sparred with government attorney Angel Tavares about the system’s support for efforts by the Mapp Administration to provide further funding. Tavares asked why Nibbs asked that an item to consider sale of the Havensight Mall on St. Thomas be taken off the agenda for the July meeting of the GERS board.

Because the offer would have brought in $25 million, and that was not enough. Nibbs said. Havensight’s most recent appraisal valued the property at $43 million. GERS is making about $2 million a year on the shopping center, and a few years ago the Mapp administration asked the system to invest $350 million to upgrade the property.

Then, he said, they wanted to take $25 million for Havensight. “The proposal was never discussed with us. No one came before the board,” he said.

Aldwin Frias, an actuary from Segal Consulting, spoke about the factors playing into an underfunded pension system

Jorge Baez, an economist, questioned the wisdom of the GERS’ non traditional investments. Baez suggested the system lost $100 million as a result. That figure was produced through an analysis into the GERS alternative investment plan.

The judge asked if the witness was offering an opinion and could he qualify as an expert on alternative investments. Tavares suggested that some of the pension system’s problems were self inflicted.

But Aldwin Frias, an actuarial accountant with the firm Segal Consulting offered a different analysis.

“If the plan had been fully funded through ADEC, they would have about $1.6 billion more in assets and currently be fully funded,” Frias said.

Attorney Robert Klausner, representing GERS, said something had to be done while there was still time.

“A plain reading of the consent decree says there will be a defined employer’s contribution,” he said. “I worked on the Detroit bankruptcy, which was a tragedy in the making. And this one is too,” he said.