This year marks the 50th anniversary of the Government Employees Retirement System, making it one of the oldest pension systems under the U.S. flag. But according to actuarial projections the system will run out of assets in the next 14 to 19 years.
During Tuesday’s hearing before the Senate Appropriations and Budget Committee, Austin L. Nibbs, GERS administrator, told senators, “Since 1996 the GERS has not been in good health and its health continues to deteriorate. This is the year that the system went from a positive net cash flow to a negative net cash flow, where benefits and expenses exceeded contributions.”
According to the Senate Post Audit Division’s report, GERS collected approximately $126.5 million between Oct. 31, 2008, and June 30, 2009, but has paid out approximately $167.6 million. The deficit in operational cash flow for fiscal year 2008 was $66 million.
In an effort to reduce the unfunded liability, GERS will begin implementing the Reform Act and Tier II beginning Jan. 1, 2010. Tier II includes a reduction in employee benefits and an increase in employee contributions from 8 percent to 8.5 percent.
GERS will also introduce new legislation proposing a deferred retirement option program (DROP.) The program would be limited to those employees eligible for retirement as of Dec. 31, 2009, with excess annual and sick leave that can be credited to their years of service through that date. It would, if approved, allow the employees to continue to work for a period between two and five years, receiving the same salary as if they did not retire. As of Dec. 31, 2009, the employees would stop earning service credit toward a future benefit. Their retirement benefit would be calculated from the time the DROP period begins on Jan. 1, 2010, and their monthly retirement benefits would be held in a trust fund, earning monthly interest at an annual rate determined by GERS. When the employee’s participation period expires, the employees would leave government service and receive a lump sum payment of the monthly payments and accumulated interest. They would then begin to receive regular monthly annuity payments.
“The purpose of this proposal,” said Nibbs, is to continue to maintain the contribution base until the central government can develop and implement a succession plan.”
Nibbs also told senators GERS will propose an increase in the compensation cap from $65,000 to $106,000. This would bring about an increased $2.6 million in contributions based on the approximately 1,200 employees earning in excess of $65,000.
The central government is currently up to date with its contributions to GERS, but WAPA owes $916,190 and the University of the Virgin Islands owes $450,497. According to the GERS report, another $130,591 is owed by other instrumentalities.
Also in arrears with payments to GERS are the Department of Justice and the Department of Personnel. The Justice department owes GERS a total of $863,524.09 in rent, electricity, and late fees, while Personnel owes $534,116.65 in rent and electricity.
Nibbs did have some good news for members of the Senate. Thanks to a payment of $2,270,000 the Government Employees Retirement System received from the Virgin Islands Lottery, in accordance with Bill No. 28-020 signed into law by the governor on June 24, 2009, 5,744 retirees will each receive a check for $395.19 as a cost of living increase bonus, according to Nibbs.
The bonus checks are in addition to the 1.5 percent cost of living increase retirees were paid on July 15 of this year.
Construction of the St. Croix GERS complex has resumed and that building, a 22,000 square foot two-story building, is scheduled to be completed in February.
