Oct. 18, 2003 – While thousands of younger government employees went shopping, or went to the beach or took their dog to the vet on Saturday morning, an intense fight for their financial future was being waged by a dedicated group of older retirees.
And that future — the future of the Government Employees Retirement System — gets shakier by the day. Experts predict that, at the current rates of benefits paid out versus contributions brought in, GERS could go broke in 20 years. And that is notwithstanding the Legislature manipulating its dwindling funds.
Just a handful of persons, mostly government retirees, turned up for the 2nd annual meeting of the Advocates for the Preservation of the Retirement System at the Charlotte Amalie High School auditorium to hear Raymond James, GERS board chair, and Sen. Louis Hill speak. But that did not hinder the group's determination.
Hugo Dennis, the outgoing APRS chair, expressed the group's mission: "We're not the agents for the GERS; we're the watchdogs."
Vernelle De Lagarde, president of the St. Thomas-St. John local of the American Federation of Teachers, is the new APRS chair. She was not visibly dismayed at the small turnout. "We will be heard from," she said, noting the presence of reporters from the Source and WVWI Radio.
The meeting took an unanticipated twist at the last minute, as a proposed 39-page GERS reform bill suddenly surfaced, the first such legislation in 44 years. Hill said he had received the measure on Friday. Dennis said before the meeting that he had been trying to get the bill from various government offices for two days, with no success.
The bill was sent to the governor Aug. 1 and delivered to the Legislature Friday along with a cover letter to Senate President David Jones from Laurence Bryan, GERS administrator. "The bill has been at Government House for two months," Dennis said. "When this meeting was announced, they quick sent it to the Legislature."
James said it was sent to the central government first because "they are responsible and they ought to send it to the Senate."
Looking at the sparse audience, Dennis said, "I'm a little disappointed there aren't more people; politicians are impressed by large numbers. When they see that we are small, the feel they can do with our dollars what they want."
The APRS did, however, amass 6,000 signatures on a petition it sent to Jones for repeal of two bills affecting the retirement system. (See "GERS system touted to younger workers".)
Dennis said the term "unfunded liability" is "too esoteric" and probably doesn't resonate with younger workers. The term refers to the amount of money the system owes retirees that is in excess of the funds coming into the system.
James said the system currently pays out $120 million annually to retirees while taking in $85 million from employees and the government. This is in addition to about $25 million to $30 million a year in loans, he said. "We can no longer do this," he said. "Without reform, one day we simply won't be able to send annuities checks to retirees."
James said the proposed legislation recommends a 1 percent increase in what the central owes the system over the next five years, or a 1 percent increase including employee contributions. "It's a small way to bring into line the 17.1 percent shortfall," he said.
Higher contribution rates suggested earlier
Bryan had said at an August Senate Finance Committee meeting that he had proposed a 7 percent increase in payments into the system, with 2 percent to come from employees and 5 percent from the government.
GERS is paying out benefits to 6,052 retirees and receiving contributions from about 10,555 employees, he said at that meeting. If contributions remain at the same level, he said, the system will be bankrupt in 20 years.
The legislation provides for a "second tier" retirement plan for persons who go on the government payroll after the proposal becomes law, James said. This second tier would require an 8.5 percent contribution from employees and 14.5 percent from the government.
James said the reform legislation would give GERS "greater liberalization" in its investment portfolio, authorize the system to invest in BBB-rated securities. He said such securities are offering yields comparable to those rated A at a comparable risk level, he said, and will give a better return over the next 10 years — about 10 percent as compared to 8 percent for those rated higher.
"The central government's 'arm's length' attitude doesn't help," James said. "One example of this is the proposed 36-hour work week. It exacerbates the problem. Why did they do it? Since 1994, we have been paying out more than we have been receiving, more than a $35 million cash deficit annually."
However, James said, "the system can be fixed, if it's not interfered with, with hodge-podge amendments by senators. Our proposal is a unified reform act."
Hill agreed, saying that he has drafted legislation to that particular purpose: to give the GERS board control over the level of employee and government contributions. "I feel that the board should do the rates, "he said. "They have the expertise. The Senate is not the best entity to make those determinations. It should be moved from the Legislature to the GERS governing board."
He said his legislation had been headed for the Government Operations Committee, "but now it will probably be incorporated into the 39-page reform bill, which I haven't read yet."
Hill did not agree with James on another issue. "I am in total disagreement that the reform legislation should have gone to Government House first," the senator said. "We asked for the legislation, and they sent it to the governor. Isn't the Legislature a part of the government? I think Hugo is right; they read about this meeting, and it showed up."
How to calculate retirement pay also an issue
Another quirk in the system bothers Hill. "The dilemma of retiring at what you have made for the last three years should be adjusted," he said. "If you worked for $27,000 for 20 years, and you get a raise to $60,000, you get the $65,000 cap. It should be changed to the last 10 years of when you worked. Hopefully we can get legislation deal with that."
James said it's not spelled out in the bill, five years would help.
Dennis said he had heard of a move afoot to increase the retirement cap to $80,000. James's response that there is no such provision in the reform bill was met with applause. According to Alphonso Nibbs, GERS attorney, "You can't receive more than the $65,000, no matter what you are making, except for the judiciary."
Dennis laughed. "No one was crazy or risky enough to do that," he said.
Hill said another problem is that "the government contributes to the system whenever it wants to, not on a regular schedule. It should have to pay interest on that money. It could have been earning money in investments."
Hill also said that while GERS should have more funding authority, the Legislature should have oversight over the GERS board. "Some entity should have oversight over the board's action and expenses and method of operating. In essence, they can do what they want."
He, too, expressed disappointment at the small turnout on Saturday. "People should demonstrate — and look at the turnout here today," he said. "There has never been a demonstration for the $731.7 million unfunded liability."
He agreed with Dennis that to most government workers, the issue is "in the distant future. The average person doesn't understand. If you were not to issue checks for one payday, th
ey would understand." And, he added, "if we had said Jam Band would be here, we would have a full house."
But he pointed out a recent example of public influence to bring about change: "Look at what happened with the proposed raises for the governor and senators," he said. "They demonstrated, and the governor vetoed his own bill. There's something to be said about numbers. If government employees care, they should demonstrate. This is a great opportunity."
It was noted that GERS workshops aimed at informing workers about the system have not attracted much participation on the part of younger government employees, either.
With a nod to De Lagarde, Hill said he would advocate for the legislation. He said it would be studied at a Fiscal Year 2004 Budget meeting of the majority caucus and GERS representatives on Tuesday.
No one at the APRS meeting except James and perhaps Nibbs had had a chance to peruse the legislation. De Lagarde and others were quickly reading through the voluminous document before the session started.
In a question-and-answer session, Erva Denham asked James if he would consider allowing private businesses with no retirement plans of their own to join GERS. "As long as it is cost-neutral, we would consider it," James said.
Another attendee asked why Bryan, and not the governor, had sent the legislation to the Senate. "I can't answer that," James said. He said he had spoken to Nathan Simmonds, the governor's financial adviser, and Ira Mills, director of the Office of Management and Budget, "and they said it was sent to the Attorney General's Office."
"And it would probably still be there if we hadn't had this meeting," Dennis said.
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