The V.I. Legislature approved a revised version of recent government pension reform during a special session Monday night.
The retirement reform bill aims to strengthen the territory’s ailing Government Employee Retirement System by reducing some benefits and increasing some payments for more recently hired Tier II government employees.
Gov. Kenneth Mapp had vetoed the bill, saying the version sent to him had drafting errors and one provision that is different from what the Legislature voted upon. The governor asked the Legislature to send a new, clean bill to sign.
For many years, the pension fund has paid out more in benefits than it takes in in revenues, accumulating a $1.8 billion unfunded liability, due to legislated mandates in years past for unfunded benefits and early retirements. That trend has been worsened by a shrinking government workforce due to budget cuts and early retirements, which have reduced the ratio of active employees to retirees.
Without reform, GERS is expected to have liquidated all its reserves and be forced to cut benefits sharply by 2025. With the reform bill, the pension would stay solvent some months or a few years longer, but the system needs both a giant infusion of cash and big contribution increases and cuts to future retirees’ benefits – if it is to survive, GERS officials, trustees, actuaries and financial advisors say.
The version approved Monday [Bill 31-0251] raises some retirement ages, adds to the types of employees eligible to join GERS and lets eligible employees join right away instead of waiting. Instead of setting pensions based on the top five years of earnings, it would set them based on career earnings, so that a few years at higher pay right before retiring would not result in potentially decades of much higher pension payments.
Several sections of the bill tinker with the types of investments GERS can engage in, allowing more risky investments in hopes of higher rates of returns on investment. GERS investments as a whole have performed well over the years, but not well enough to make up for the difference between what collects in contributions and what it pays out in benefits.
One provision of the bill increases the amount of the pension portfolio that can be invested overseas from 10 percent to 25 percent, on the advice of investment advisors who said that could enable higher rates of return.
Another section allows GERS to invest "a maximum of 15 percent of the portfolio in below-investment grade securities.” It also reduces the minimum bond rating for foreign bonds and securities from BBB to B and increases the amount that can be invested in one foreign bond from 2 percent up to 5 percent of the total portfolio.