After a V.I. government employee completes 10 years of service, he or she becomes vested in the system. This is good when you have a healthy retirement system. However, with the precariousness of the Government Employees Retirement System it can be bad. When employees become vested in the system they are no longer able to take the funds they contributed to the system out. They are locked in.
GERS Administrator Austin Nibbs told the GERS board Thursday more employees are becoming concerned with this and are resigning before they become vested in the system and then drawing all the money they put in GERS out.
“This is a problem we need to pay attention to,” Nibbs said.
He reported that in the past two years around 1,000 employees who were making contributions to the system have left. Of those who left between January and November 2018; refund applications were filed by 614 from non-vested members; 405 of those applications were processed, costing the GERS more than $6 million.
Nibbs told the board that if GERS has to pay out $7 million a year (he predicted more employees would jump ship as the projected bankruptcy in 2023 gets closer) that “is a lot of money.” GERS actually profits when an employee quits before being vested. The employee only gets back what he or she put in the system and not what the employer contributed. The problem appears to be the timing of withdrawing large amounts.
He added that the state of GERS was not only contributing to employees leaving government service early, but it was making it hard for the government to fill certain positions.
Nibbs told the board he had hope that the new administration with a “new attitude” might help resolve GERS’s problems.
Board member Carol Callwood said she thought the transition was overly aggressive in requesting detailed information from GERS. Nibbs told her that “in the spirit of cooperation” he was turning over all the information GERS had that the transition team requested.
Nibbs also saw a bright side in the case of recent retirees. He said the time between an application for retirement check was received and the first check being issued had been getting shorter if contributions were not missing. But here too was a dark side.
As a result of having to get materials for a hearing in District Court last month, his staff updated figures from 2013 which said the government owed GERS $47 million in back contributions. He said the new un-audited figures showed $72 million in missing employer contributions and $40 million in missing employee contributions. He urged all employees to check to see if they had any missing contributions. The Senate has appropriated $19 million to address missing contributions this year.
Speaking about the GERS bill debated in a Senate committee meeting Wednesday, board chair Wilbur Callender said the bill did not address pertinent issues and was an “absolute waste of time.” The bill would prohibit the board from making policy that would affect retiree benefits without first getting the green light from the Senate.
Nibbs said the board does not have the authority to reduce benefits. The notion of reducing benefits had been thrown around two years ago when an actuary recommended it. At that time the board determined it would be illegal.
However, Nibbs added, if something like a large infusion of cash does not happen “benefits will be reduced.” If you only have $10 million and owe $21 million, who are you going to pay.
Just a little calculation of the numbers provided: 405 processed refunds of GERS employee contributions to the tune of $6 million equals on average $14,815 dollars contributed over, say, 9 years (after 10 years one is vested and cannot get refund) equals $1646.09 contributed by employee per year, or $137.17 per month. Hypothetically, if said employee continued to work until retirement, say another 21 years, their total contribution would be another $34,568. For a total employee contribution of $51,383 over 30 years. If matched by GERS (not looking good), a grand total of $102,766 actual contributions for 30 years of work. If invested at 8% (being very generous to GERS investing prowess), then the plan would produce $194,350 for retirement. If said employee lived another 30 years beyond retirement, which is very likely because they would retire at age 48 if government employment started at age 18, then they would have a grand total of $6478 per year on which to live. Or $540 per month. With inflation and taxes, much less than that. Not an expert, but GERS is not a good investment, and employees have been fed unrealistic expectations about their comfort in retirement. Hopefully, since NO ONE is capable of reading the writing on the wall that GERS is, and always has been, unsustainable, then it could just die a natural death through employees “jumping ship.”
The 500 or so is bettet than nothing along with the expensive health insurance. Think about it. Most of those people would not have saved a dime on their own for retirement and will surely end up depending on government social services to sustain them for the rest of their lives. Most people are not preparing for retirement and will suffer in their older years. As little as GERS may pay it better than nothing.
You are likely correct in your assertions, however, inflation and other factors will reduce the actual value of the monthly payment by a lot. There are many ways to invest money on an individual basis. Online brokerages can be very easy and cost-effective. If the employees who withdraw their money invest the amount of $14815 at 8%, continuing to add $137 monthly, after 21 years they would have around $160,000. And that is without the employer match. Incidentally, considering how good the stock market has been for the last 9 years, the amount that employees are receiving for early withdrawal should actually be around $21,500 for 9 years at around 8%, not $14815. But then, GERS is not known for its investing skills. Investing can be scary, but if one has a smartphone or
Computer, there is a wealth of information out there. Vanguard and founder John Boyle, is a good place to start.
*correction* John Bogle