Gov. Kenneth Mapp signed an incremental Government Employee Retirement System reform bill into law Monday.> He initially vetoed the measure, citing drafting errors, but the Legislature approved a new bill addressing his concerns on Oct. 20. [Bill 31-0251]
“I thank the Legislature for correcting the technical errors that I noted in my veto message," Mapp said Monday in his letter to Senate President Neville James.
>"While I believe that there is still much to be done to stabilize our GERS system, approval of this measure is a necessary first step as we work together to ensure that its members can feel secure in the solvency of their pensions,” Mapp said.>
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, according to GERS officials, trustees, actuaries and financial advisors.
The new law 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 it 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.
Mapp also asked the Legislature to change the law to allow him to nominate two extra members of the GERS board, which would give him more direct influence on what the board does.
“I am still seeking legislative authorization to appoint two> additional members to the GERS Board, one from each district, who has demonstrated knowledge and experience in money management and investment fund management experience," Mapp said in a statement. "Placing this acumen directly on the board is as essential as any reform measure," he said.
Also Monday, Mapp signed the government employee life insurance contract between the V.I. government, Port Authority, University of the Virgin Islands, the V.I. Housing Authority, St. Thomas East End Medical Center, the Frederiksted Clinic and Aetna Life Insurance Company.
