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Charlotte Amalie
Friday, March 31, 2023
HomeCommentaryOpen forumWhy the GERS Will Ultimately Fail

Why the GERS Will Ultimately Fail

Vince Danet

To understand why the Government Employees Retirement System (GERS) will inevitably fail, one must first understand the difference between working for the government (public) versus working in the private sector.

The basic difference between public and private sector work is that the public sector is supposed to be about service to the public, and in the private sector one works for self-interest while contributing to your organization.  As such, depending upon individual effort and accomplishment, income expectation is, by its very nature, supposed to be ‘limited’ for public sector employees, contrasted to the ‘unlimited’ potential for private sector employees.  All things being equal.

As a private sector employee working for a business you have, as a choice if offered, a 401K plan where your contribution is matched by your employer.  There are variations on savings schemes depending on the size of the business.  Of course, this is all voluntary on the employee’s part and a retirement nest egg is grown over many years.  Private sector pensions are mostly gone because companies figured out that they’re unsustainable.  If you don’t save on your own, you don’t get a retirement other than perhaps the promise of social security.

As a government employee, the pension is based a set of promises funded in part by the employee and by the government.  Government being we the people, the taxpayers, funding a portion of the government employee’s retirement promise whether you as a taxpayer save for yourself or not.  As a public sector employee, there is also the opportunity to ‘double dip’ where you retire from one area of government, collect the pension, and because you may be young enough, you work in another government job collecting income and building yet another subsidized retirement.  There are some nuances where politicians ‘vote’ themselves sweeter deals and protections in the process of constructing the ‘vote pump.’

Private sector unions must consider the basic health of the parent company when making demands for better compensation and working conditions.  If they don’t, they run the risk of killing the ‘Golden Goose.’  Everyone loses because if the parent company fails due to its inability to be economically viable due to management conceding uneconomical demands to the union, then no one gets paid. Not good.

On the other hand, public sector unions are very different.  First, we the people who are the government, aren’t the ones making the promises; it’s the career politicians who we vote to represent us.  Second, the government is not a for profit organization; therefore, it is not supposed to be in the business of making government employees affluent.  Using taxpayer dollars as seed money, politicians and public sector unions create constituencies, or blocks of ‘guaranteed’ voters protecting their fiefdoms.  Properly constructed, the ‘vote pump’ is a system by which politicians and public sector unions secure job and financial security at significant taxpayer expense.  There is no sensitivity to the financial health of the core of the organization, which is we the people.  Taxpayers are considered an unlimited resource, a ‘Holy Grail’ of sorts.  Government pension plans, like GERS, are Ponzi schemes that are unsustainable.

Any given taxpayer must fund both their own retirement and that of government employees at the federal, state, local, and in our case, territorial level.  As a private sector saver, you run the positive or negative risk of market forces, while public sector employees have the ‘safety’ of politicians saving their promised retirement benefits via additional taxation and bailouts. By the way, retirement income is taxed, further benefitting the public sector.

The Federal Reserve, at the behest of the Feds, reduced interest rates to zero for well over a decade, ‘to save the system’ which had the effect of spurring borrowing at a fantastic clip across the board… in essence, blowing the huge financial bubble which is presently popping.  When you consider that any pension plan must make at least 7 to 8 percent return on investment to be viable in the long run, and you do the zero interest-rate policy math, you ought to see the very large problem.  In this sense, GERS is not unlike private sector retirees who hope to ‘live off the interest’ and are essentially screwed by the zero interest-rate policies; both GERS and private savers are forced to take bigger risks to manage a dwindling nest egg.   Many retirees are forced back into workplace as a result.  GERS must beg for a bailout which only kicks the Ponzi down the road and exacerbates taxpayer burdens.

The VI government’s illegally keeping multiple years of our tax refunds is just one symptom.  The current shutdown policies are quite the conundrum as government stabs the ‘golden goose’ and blames the COVID-19 black swan event.  Just how will government generate income with taxpayers essentially under house arrest?

The feds via the Federal Reserve can and are literally conjuring money out of thin air, but state, local and territorial governments cannot.  This is a culling and I believe the negative societal ripple effects will be epic. There is no free lunch.

The COVID-19 crisis is just the pin that is pricking this gigantic bubble, and we are errantly focusing on the pin and not the bubble.  Depending on our actions as a country, our very constitutional republic is at stake.  It’s a foregone conclusion that GERS is going to fail, the question is, are we willing swallow the bitter pill to make the tough choices needed to clean out the corruption and excesses to save the taxpayers and our way of life? Just my 2 cents.

Vince Danet of St. Thomas

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  1. My comments below are meant only to offer perspectives to the debate regarding the Government Employees Retirement System (GERS) in the U.S. Virgin Islands.

    Public sector sponsored retirement systems evolved out of a particular historical context, and some elements of that context still exist. In many countries where such schemes exist, it takes the form of a national insurance scheme in which employees from both public and private sectors contribute to the scheme. The US uses a mixture of a national scheme for everyone (Social Security), state-based schemes for public sector workers (as in the case of GERS), and an assortment of private retirement schemes. Of course, given the way the US economy functions, there is a large portion of the workforce that, though employed, cannot afford to participate in retirement schemes.

    It has been suggested that state-based systems for public sector workers are ultimately doomed, and many reasons have been advanced. Any debate about such systems should include clarity regarding the reasons for establishing such systems and whether such reasons, or new ones, justify the continued existence of public sector employment retirement systems. Whether they are poorly managed, or the current design is constraining, or any other consideration, is, in my opinion, secondary to the question of relevance. Is the system needed now and for the foreseeable future?

    For persons that are quick to point to the abundance of private retirement accounts, please consider that: (1) there is a reason why many corporations abandoned the health schemes and pension funds for their workers; and (2) many private retirement accounts are also poorly managed, and all suffer losses during economic downturns, just as public schemes. I will mention in passing that the push to move many government services, including some areas of oversight for the financial services industry, to the private sector has not served the US well in the past two decades.

    So, back to the local GERS. Is it necessary? If so, is the current form the best configuration? Would a different governance architecture improve management? Do people (beneficiaries, staff, and stakeholders) really want to make radical changes if such would transform the GERS but also make it sustainable? If the GERS is as important to the community as stated, are we all stakeholders and therefore get to have a say in its future?

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