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HomeNewsArchivesExecutive Branch Working on Plan to Reduce GERS Debt in Three Decades

Executive Branch Working on Plan to Reduce GERS Debt in Three Decades

July 18, 2007 — Officials up at Government House are working on a proposal that could eliminate a more than $1 billion debt in about 30 years, one financial advisor to the Government Employees' Retirement System (GERS) said Wednesday evening.
At a board meeting on St. Thomas, GERS actuary Howard Rog explained that he has, over the past few weeks, been meeting with Gov. John deJongh Jr. and members of the governor's financial team to address the ever-present unfunded liability.
DeJongh should be coming down with a comprehensive proposal shortly, which calls for an increase in employer contributions, the issuance of up to $600 million in pension-obligation bonds and the appropriation of other financial resources that could help bail out the system, Rog said.
"The governor wants to put the system in a much better financial situation," he said. "And over the last several weeks, we have had several discussions with the financial team about what we need and what kind of resources it would take to accomplish that goal. We talked about amortizing the unfunded liability over a period of time, having it completely paid off on a projected basis. But they also needed to understand the potential impacts of the pension-bond authorization."
While the numbers keep growing, steps have been taken to reduce the massive debt, Rog added. About two years ago, the Legislature passed a bill establishing a Tier II system for government employees paying into GERS, he explained. According to the legislation, which was subsequently signed into law by then-Gov. Charles W. Turnbull, employees hired after October 2006 would receive a different level of benefits than employees already within the system.
Before the Senate wrapped up last December, it passed another bill that authorized the government to float up to $600 million in pension-obligation bonds to pay off a portion of the unfunded liability. This plan has been touted by GERS in the past, with Rog testifying at previous Senate hearings that the floating of pension-obligation bonds would provide a quick infusion of cash into the system.
Taking the next step, deJongh has submitted additional legislation in the fiscal year 2008 budget proposal that calls for a 3 percent increase in employer contributions, from 14.5 to 17.5 percent of employees' gross pay. The $10.5 million needed to cover the upcoming fiscal year's increase is included in the miscellaneous section of the budget, along with another $20 million contribution intended to pay down the unfunded liability.
While deJongh initially spoke out against increasing the burden of debt on the government's shoulders, at a recent press conference he explained that the increase in contributions would be followed by the issuance of pension-obligation bonds during the 2008 calendar year. It is not yet known, however, whether the administration plans to take full advantage of the $600 million authorization, or whether a smaller amount of bonds will be issued.
On Wednesday, Rog added that even with the bonds in place, GERS will still need additional resources to fully pay off the debt. For example, a continuous appropriation in the executive budget that would help to reduce the difference between what GERS receives in contributions and what it pays out in benefits, he said.
Additionally, board members could also look at increasing the standard rate of return GERS receives on its investments, from 8 percent to 8.25 percent, Rog said. At previous Senate hearings, Rog has testified that the estimated time period of the system's collapse could increase or decrease based on the rate of return. There have been years where GERS has gotten a rate of return under 8 percent, thereby sliding the system closer to insolvency, he said.
After the meeting, Rog said that if all the financial factors are in place, the unfunded liability could be eliminated within a projected 30 years.
"Later this week, on Friday, we have been asked to meet with the governor to go over the proposal," he told board members during the meeting. "I'm really pleased that this discussion has continued to go forward, so we can really fix GERS' financial situation by stopping the growth of the unfunded liability and paying off what's owed."
Though the actual dollar value of the unfunded liability was not mentioned during
Wednesday’s board meeting, GERS' balance sheet for the past nine months does reflect its current financial situation, showing a $50.2 million net deficit for the period of October through June.
While board members said this figure does not indicate that the system is operating at a loss, they did explain that GERS is continuing to pay out more in benefits than it is collecting in contributions.
For the nine-month period, total cash receipts — which include nearly $74 million in employer and employee contributions — total $103.5 million. However, total payouts add up to about $153.7 million, including $118.8 million in annuity payments.
The board continues its two-day meeting agenda at 9:30 a.m. Thursday. At that time it will consider applications for a new GERS administrator and chief financial officer, among other things.
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July 18, 2007 -- Officials up at Government House are working on a proposal that could eliminate a more than $1 billion debt in about 30 years, one financial advisor to the Government Employees' Retirement System (GERS) said Wednesday evening.
At a board meeting on St. Thomas, GERS actuary Howard Rog explained that he has, over the past few weeks, been meeting with Gov. John deJongh Jr. and members of the governor's financial team to address the ever-present unfunded liability.
DeJongh should be coming down with a comprehensive proposal shortly, which calls for an increase in employer contributions, the issuance of up to $600 million in pension-obligation bonds and the appropriation of other financial resources that could help bail out the system, Rog said.
"The governor wants to put the system in a much better financial situation," he said. "And over the last several weeks, we have had several discussions with the financial team about what we need and what kind of resources it would take to accomplish that goal. We talked about amortizing the unfunded liability over a period of time, having it completely paid off on a projected basis. But they also needed to understand the potential impacts of the pension-bond authorization."
While the numbers keep growing, steps have been taken to reduce the massive debt, Rog added. About two years ago, the Legislature passed a bill establishing a Tier II system for government employees paying into GERS, he explained. According to the legislation, which was subsequently signed into law by then-Gov. Charles W. Turnbull, employees hired after October 2006 would receive a different level of benefits than employees already within the system.
Before the Senate wrapped up last December, it passed another bill that authorized the government to float up to $600 million in pension-obligation bonds to pay off a portion of the unfunded liability. This plan has been touted by GERS in the past, with Rog testifying at previous Senate hearings that the floating of pension-obligation bonds would provide a quick infusion of cash into the system.
Taking the next step, deJongh has submitted additional legislation in the fiscal year 2008 budget proposal that calls for a 3 percent increase in employer contributions, from 14.5 to 17.5 percent of employees' gross pay. The $10.5 million needed to cover the upcoming fiscal year's increase is included in the miscellaneous section of the budget, along with another $20 million contribution intended to pay down the unfunded liability.
While deJongh initially spoke out against increasing the burden of debt on the government's shoulders, at a recent press conference he explained that the increase in contributions would be followed by the issuance of pension-obligation bonds during the 2008 calendar year. It is not yet known, however, whether the administration plans to take full advantage of the $600 million authorization, or whether a smaller amount of bonds will be issued.
On Wednesday, Rog added that even with the bonds in place, GERS will still need additional resources to fully pay off the debt. For example, a continuous appropriation in the executive budget that would help to reduce the difference between what GERS receives in contributions and what it pays out in benefits, he said.
Additionally, board members could also look at increasing the standard rate of return GERS receives on its investments, from 8 percent to 8.25 percent, Rog said. At previous Senate hearings, Rog has testified that the estimated time period of the system's collapse could increase or decrease based on the rate of return. There have been years where GERS has gotten a rate of return under 8 percent, thereby sliding the system closer to insolvency, he said.
After the meeting, Rog said that if all the financial factors are in place, the unfunded liability could be eliminated within a projected 30 years.
"Later this week, on Friday, we have been asked to meet with the governor to go over the proposal," he told board members during the meeting. "I'm really pleased that this discussion has continued to go forward, so we can really fix GERS' financial situation by stopping the growth of the unfunded liability and paying off what's owed."
Though the actual dollar value of the unfunded liability was not mentioned during
Wednesday’s board meeting, GERS' balance sheet for the past nine months does reflect its current financial situation, showing a $50.2 million net deficit for the period of October through June.
While board members said this figure does not indicate that the system is operating at a loss, they did explain that GERS is continuing to pay out more in benefits than it is collecting in contributions.
For the nine-month period, total cash receipts -- which include nearly $74 million in employer and employee contributions -- total $103.5 million. However, total payouts add up to about $153.7 million, including $118.8 million in annuity payments.
The board continues its two-day meeting agenda at 9:30 a.m. Thursday. At that time it will consider applications for a new GERS administrator and chief financial officer, among other things.
Back Talk Share your reaction to this news with other Source readers. Please include headline, your name and city and state/country or island where you reside.