While the gubernatorial election votes continue to be counted, whoever takes the helm of the U.S. Virgin Islands this January will inherit at least one lingering problem unaddressed by the 30th Legislature, the Government Employees Retirement System’s $1.8 billion unfunded liability.
In an effort to address the growing and continuously underfunded GERS, Gov. John deJongh Jr. formed a Pension Reform Task Force by executive order in March 2012 to address the problem.
The task force presented its report detailing the cause of the problem and outlining actions that could be adopted by legislative measures to help stem GERS’ financial hemorrhaging in April 2013.
“GERS is critically at risk due to a growing unfunded liability of approximately $1.8 billion,” according to the Pension Reform Task Force report dated April 29, 2013. “Factors contributing to this situation are: insufficient contributions, a decreasing ratio of actives to retirees and unfunded legislative mandates.”
If no action is taken, GERS will be insolvent by September 30, 2023, according to the report. To avoid that, the Pension Reform Task Force report detailed recommendations focused on increasing contributions while reducing plan costs.
The report called for Regular Tier II government employees to not collect retirement income until they are 62 and have 10 years of service, eliminating the any age with 30 years of service clause.
Class III Tier II government employees should not collect retirement income unless they are 55 and have 25 years of service, or are 60 with 10 years of service, and eliminate the any age with 20 years of service provision.
The task force recommended suspending the Cost of Living Adjustment for five years except for persons with disabilities.
To increase employer and employee contribution rates and reduce plan costs, the task force outlined two options that could be accomplished by legislative measures. The first option called for legislation to increase employer contribution and employee contribution by 1 percent for seven years while reducing Tier I benefits by 10 percent.
The second option mandated increasing employer contributions by 2 percent for seven years and employee contributions by 1 percent for the first three years and by 0.5 percent for the next four years, while reducing Tier I benefits by 10 percent.
The task force report called upon legislators to increase their contributions to a 15 percent rate and altered contributions made by judges. Under the recommendations, new judges would increase their contributions to 17 percent, while sitting judges – depending on how long they have been in the system – would increase their contributions to between 15 and 17 percent.
The Pension Reform Task Force also called for an end to “double dipping” by enforcing the provision allowing only 75 days of employment after retirement, removing all exemptions to that provision and suspending the pensions of retirees who go over 75 days of employment.
The task force report called for increasing the amount of personal loans given by GERS to $75,000 from $50,000 and the amount of commercial loans to $350,000 from $250,000.
To fund the recommended 2 percent increase in employer contributions, the task force called for the government to commit rum tax receipts deposited into the Internal Revenue Fund to back a bond. The GERS payment would then be deducted after the payment of debt services in order to have an established revenue source dedicated directly to cover the unfunded liability.
In its conclusion, the report acknowledged that sacrifices would have to be made by government employers, employees and retirees, yet called it “imperative” to address GERS’s funding shortfall.
Despite several proposed legislative measures, the 30th Legislature did not take action on the Pension Reform Task Force recommendations. During GERS’ budget presentation before the Committee on Finance on Sept. 9, Chairman Clifford Graham promised to convene hearings and take action after last week’s general election and before the end of the 30th Legislature’s term in January.
"Pension reform is something we will get done before the end of the year," Graham said.
The task force was headed by Avery Lewis, chairman and president of the Central Labor Council; and consisted of attorney Raymond James, former chairman of the GERS Board of Trustees; Office of Management and Budget secretary Debra Gottlieb; GERS administrator Austin Nibbs; Deputy Chief of Staff Nathan Simmonds; Post Auditor Jose George; and Tom Brunt of the St. Thomas/St. John Chamber of Commerce.
The Task Force also worked with an Advisory Committee comprising Finance Commissioner Angel Dawson, Director of Personnel Kenneth Hermon Jr., Sebastiano Paiewonksy of the St. Thomas/St. John Chamber of Commerce, Wayne Harty of the St. Croix Chamber of Commerce, Helene Smollett of the Advocates for the Preservation of GERS, and Deynce Singleton of the American Association of Retired Persons.
