The Government Employees’ Retirement System’s loan program, which offered members mortgage, auto and personal loans until it was suspended in August, will remain inactive in spite of two letters from senators and a “tremendous” amount of phone calls requesting it be reinstated, the GERS Board of Trustees determined on Thursday.
At Thursday’s regular monthly meeting, the board unanimously passed a motion to strengthen the word used to describe the program’s suspension from “temporary” to “indefinite.” Despite the motion’s support, it was not immediately clear to all board members whether the language change had any practical implications.
GERS Administrator Austin Nibbs said during discussion of the motion that he is in favor of going further and ending the loan program permanently.
In August the board voted to temporarily stop offering loans to government employees and retirees in order to ensure the liquidity needed to pay out benefits. Approximately $150 million, or around 15 percent of GERS’s assets, were tied up in the loan program.
GERS must draw nearly $150 million annually from its assets in order pay its members their pensions, according to GERS’s consultant Leandro Festino, of Meketa Investment Group. If the system were to turn all its assets into cash, Festino said, it would be able to meet its obligations for only a little over six years.
GERS officials and advisors have repeatedly said that without major reforms of the system, and an infusion of cash that appears increasingly unlikely, the system will become insolvent in a decade or less. Reforms passed by the Legislature so far have been modest.
GERS Board Chairman Wilbur Callender said that the reason the loan program appeared on the board’s agenda again on Thursday was the public outcry that has followed its suspension. In November, Sens. Kurt Vialet and Kenneth Gittens both wrote letters addressed to Nibbs and Callender urging GERS to bring back the program.
“The GERS loan program has been a helping hand to many of our residents, myself included,” wrote Vialet, who said his office has been “bombarded” with letters and phone calls regarding the suspension.
Vialet suggested that ending the loan program has “significantly hurt the working-class of the territory.”
Gittens, in his letter, called the suspension “extreme and unfair.”
GERS Investment Officer Bruce Thomas said overall the loan program has been a good investment for the system, bringing in an approximately 8 percent return on investment. But given that GERS is headed rapidly towards insolvency, he said, it would be a risk to have 15 percent of assets, an unusually high amount for a single investment type, held in the form of loans.
Thomas also reminded the board that the loan program has never been the main function of GERS.
“Pension systems were never conceived of to be lending institutions. Our fiduciary responsibility is to the system as a whole and not to provide economic benefits to the society,” he said.
Board Vice-Chairman Edgar Ross emphatically agreed with Thomas.
“As hard as it is for me to tell members of the system they can no longer borrow money from the system, if we permit them to borrow money we are violating our oath as trustees,” Ross said.
When the program was initially suspended, board secretary Carol Callwood was the only GERS trustee to oppose the measure, but on Thursday she said she has decided the suspension is necessary given the board’s responsibility to extend the life of the system in any way possible.
“Personally it hurts, but I accept it,” she said.
The board also unanimously voted Thursday to adopt a plan recommended by Festino called a “dynamic asset allocation” whose purpose is to protect struggling financial portfolios from the uncertainties of market fluctuations.
The plan divides investments into three categories by level of risk. The first category, cash flow reserves, are those assets that are easy to liquidate within one year and which are relatively safe from short term market corrections.
Recommended reserves, the second category, are a slightly more aggressive set of investments that may need to be liquidated within a period of three years. The third category is surplus assets, riskier investments that have more time to recover in the event of market corrections.
Under a dynamic asset allocation plan, these three categories are readjusted each year based on a pension system’s needs, Festino explained to the board.
Festino said the change in approach to its investments will not “meaningfully extend the life of GERS,” but it will reduce the risk of market fluctuations forcing the system into insolvency sooner than expected.
Also on Thursday, the board:
– Voted unanimously to cancel a $10 million line of credit with Banco Popular in order to free up the collateralized pledge of a CD.
– Approved a fiscal year budget of $3,356,186 for Havensight Mall, one of GERS’s holdings.
– Heard proposals from Anthony Ottley, director of Property Management for the West India Company, and architect John Woods of Jaredian Design Group, to introduce aesthetic improvements to Havensight Mall. The plans include landscaping, cobblestone paving, and new entryways, signage and paint colors. The design plans also streamline disembarking cruise ship passengers into the mall, addressing complaints from merchants that customers are being intercepted by taxi drivers before they reach Havensight’s stores. The plan requires a $2 million capital budget approval from GERS but no vote was taken in the regular session of Thursday’s board meeting.
Also present at the meeting were board members Vincent Liger, Michael McDonald and Leona Smith. Desmond Maynard was absent.