The board of the Government Employees Retirement System has recommended a 42 percent reduction in practically all benefit payments. The reduction would take effect Jan. 1.
Cutting government retiree benefits has been talked about for a half-dozen years. The board’s action brings it closer to reality. The proposed cuts have been forwarded to Gov. Albert Bryan Jr. and Senate President Novelle Francis Jr.
In an accompanying letter dated May 13, GERS Board Chairman Wilbur Callender said the cut would not be necessary if the government could immediately infuse the system with $195 million and continue to do so in future years.
To ask for almost $200 million the same week the governor told residents the government has a budget shortfall of $150 million this fiscal year and asking them to brace for a “financial tsunami” may appear to be wishful thinking.
Callender wrote that the GERS board has a statutory duty to avert the insolvency of the system which is projected within four years. He added, however, that the GERS board does not have the legal authority or desire to reduce annuity benefits for anyone. All the board can do, according to Callender, is make recommendations to the governor and Legislature.
“While a 42 percent reduction is painful, it is still better than a 55 percent reduction of benefits. It is now up to the plan sponsor [the government] to save the system from insolvency,” he wrote.
Francis told the Source, “The cuts to annuities recommended by GERS should only be considered as a last resort, considering the real and traumatic effects on people’s lives and our economy. As a freshman senator in the 31st Legislature, I was involved in what was then considered to be drastic reforms of the retirement system. I don’t believe that the Senate and administration have fully exhausted all of our options when it comes to saving the system. Before any move is made to drastically alter present and future retirees’ quality of life, every viable option needs to be fully explored. The plan sponsor ultimately should determine any modification to retirees benefit not the GERS board.”
Callender appeared to agree with Francis that in the end it will be the government, not GERS, that makes the final decision.
The Source sent emails to Government House to get Bryan’s comments on the proposal but had not received a reply as of Sunday evening.
GERS’ recommendation is based on a presentation by representatives of Segal, a consulting firm with a specialization in benefit administration. Segal has offices in 20 major cities in the United States.
Segal’s presentation was given to the GERS board on April 23. At that time the GERS board discussed going into more detail at a board retreat, but with the pandemic it was not certain that the board would have its annual retreat, so instead, discussion of the presentation was held at a May 7 special meeting.
Callender told the Source Friday that the recommendations were forwarded to the governor and the Senate president in mid-May “to allow them ample time for planning.”
Segal’s presentation went over the old projections showing, if nothing is done, the system will be insolvent soon and cuts to retiree checks could be as high as 70 percent.
The plan to make the cuts smaller and begin them in January introduced some new ideas. Cuts to oldest retirees would be smaller and disabled retirees would not get any cuts. The plan also would not cut Tier II retirees benefits. Tier II employees contribute higher percentages of their wages to the system and receive smaller annuities. All employees hired since 2005 are Tier II.
The Segal report was sent along with the recommendations in which Callender writes, “We strongly recommend that the plan sponsor moves post haste to adopt and implement one of our recommendations to avert the insolvency of the system and avoid the tremendous negative economic and human impact on our community.”
The most common prediction is that if the system goes to insolvency, projected benefits for the 8,700 Virgin Island government retirees would be 45 cents on the dollar.
Another concern is that the looming insolvency is discouraging qualified personnel from entering government service and encouraging current employees to opt out or retire sooner.
And as a final concern, the predicted insolvency date could be sooner because of COVID-19’s effect on the local and national economies. The government could lose the ability to pay contributions.
GERS has maintained the government has underfunded the system by $1.7 billion between 2000 and 2018.