In a move opposed by the Government Employees’ Retirement System Board of Trustees, Sens. Kenneth Gittens and Kurt Vialet have proposed legislation that would mandate the diminishing pension system reinstate a limited version of its loan program, which it suspended in August due to liquidity concerns.
At the GERS board’s regular monthly meeting on Thursday, GERS Administrator Austin Nibbs said he expects the bill (31-0289) to come before the Senate before the end of the week. According to Nibbs, the Legislature did not invite anyone from GERS to testify.
The bill, if it becomes law, would reverse the GERS’s suspension of its loan program while lowering the amount of personal loans available to active members to $10,000, with a total amount not to exceed $5 million per year, per district. Retired members would still be able to borrow at the previous limit of $50,000, with a total amount not to exceed $2.5 million per year, per district.
The bill also removes language in Title 3 Chapter 27, Section 717 of the V.I. Code that refers to GERS members’ ability to borrow from their pensions as a privilege rather than a right.
The GERS board and administrator have repeatedly taken the position that the system’s loan program must remain suspended to ensure the liquidity needed to pay out benefits. In November, the board strengthened the wording of the suspension from “temporary” to “indefinite,” while Nibbs favored moving to a permanent suspension.
Nibbs said the only way he would be in favor of bringing back the loan program would be in the event of a large cash infusion from the central government, which appears unlikely.
In November, Vialet and Gittens both wrote letters addressed to Nibbs and GERS Board Chairman Wilbur Callender urging them to re-consider their positions.
“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 had “significantly hurt the working-class of the territory.”
Gittens, in his letter, called the suspension “extreme and unfair,” an assertion that Callender challenged in his report to the board on Thursday.
Callender’s position was supported by a memo from GERS Investment Officer Bruce Thomas who re-stated his opinion, expressed at the board’s previous meeting, that reviving the loan program is too risky given GERS’s uncertain status.
“While the loan program has and continues to provide solid returns, this tough choice was prudent from an investment risk standpoint and is in the best interest of the beneficiaries,” he told the board.
Thomas said in addition to GERS needing the $150 million from its loan program in order to keep paying benefits for as long as possible, it would be irresponsible to continue making loans whose maturity dates might exceed the life of the system itself.
Experts say GERS could run out of money in less than 10 years.
Thomas also re-stated that the pension system’s purpose is to provide annuity payments for members in retirement, not to offer loans.
GERS Legal Counsel Cathy Smith said that although the Legislature has the right as plan sponsor to make requirements of the system, the ultimate responsibility for GERS’s financials lies with the board. In her view, the proposed bill asks the board to disregard that responsibility.
“Obviously I have general objections to forcing us to bring back the loans because the board members have a fiduciary responsibility; you can be sued for breaching that,” Smith said.
The board determined that since they were not asked to testify on the bill, the best course of action would be to write a letter to its sponsors, something Callender said he had already done. The board also discussed a media outreach plan to make their case to the public that the GERS loan program must remain suspended.
Also at Thursday’s meeting the board approved:
– A contract in the amount of $115,610 with Bert Smith & Co. to conduct GERS’s fiscal year 2015 audit of financial statements.
– The 2016 board calendar with the amendment that the chairman will determine the date and location of a February investment managers meeting.
Board members present were Callender, Michael McDonald, Leona Smith, Desmond Maynard, Edgar Ross and Carol Callwood. Vincent Liger was absent.