In deciding a series of cross-appeals between the Government of the Virgin Islands and the Government Employees’ Retirement System, the Third Circuit Court of Appeals on Friday affirmed that the government owes $18.9 million in principal and $6.1 million in interest to GERS, but vacated a District Court order for an additional $43 million payment from the government to the system.
The issue centered on the amount of missing employer contributions, including interest and penalties, due to GERS. The appeals court ruled that the measures necessary to save the retirement fund from insolvency cannot be imposed by the court, but must come from legislation, “If not at the territorial level, then perhaps on Capitol Hill.”
According to a news release issued by V.I. Attorney General Denise George, the Third Circuit, in a 118-page decision, affirmed in part and vacated in part the Feb. 2, 2020, and April 3, 2020, District Court judgment and remanded the case for further proceedings.
In its decision, the appeals court said, “Our ruling preserves an award of $18.9 million in principle, $6.1 million in interest and fees and what will be additional millions in enhancements for GERS. But we take off the table tens of millions of dollars in enhancements that were awarded to GERS under an unsupportable retroactive application of Virgin Islands law.”
The court acknowledged that the retirement system needs more, “possibly billions more – to fend off insolvency.” But it said the courts “can neither write legislation nor levy taxes. And we are powerless to re-write imperfect but unambiguous statutes even if doing so would make them better serve the needs of their intended beneficiaries.
The appeals court’s ruling can be downloaded and read in full here: Third Circuit Opinion filed.
– As it relates to the government’s appeal challenging the District Court’s award of principle in the amount of $18.8 million for employer contributions and $49.2 million in interest and penalties for a total award of $68.1 million, the Third Circuit affirmed the award of the principle and $6 million in interest on unpaid employer contributions during the period from 2010 through 2018. In March 2020, the government paid GERS $5 million, therefore, only $13,860,879 of the principle is currently due to GERS.
The Third Circuit further held the District Court “erred when it enhanced the award by applying late-arriving interest and penalty statutes retroactively.”
“Neither the delinquency fee provision nor the interest statute contains any express indication that the Legislature intended retroactive application,” the Third Circuits rulings says. And the GVI asserts, with no contrary indications from GERS, “that there is no legislative history reflecting intent to apply retroactively 3 V.I.C. §§ 704 and 736.”
As a result of the impermissible retroactive application of the statutes, the court vacated the portion of the judgment awarding the GERS interest and penalties of $43 million on unpaid employer contributions during the period 1991-2009. Based on the Third Circuit’s ruling, the total award to GERS was reduced from $68 million to approximately $25 million.
George noted that during the District Court proceeding, GERS claimed it was owed more than $72 million in past-due employer contributions from 1991 to 2017 in addition to interest and penalties.
– As it relates to the GERS appeal of the District Court holding “that the consent judgment does not require the GVI to fund GERS for the delta between its assets and liabilities,” ruled the Third Circuit in affirming the District Court on this issue also found “no anchor for this sweeping duty GERS seeks to impose on the GVI.”
The majority agreed “that the consent judgment does not obligate the GVI to contribute billions to actuarily equalized GERS’s assets and its liabilities to pensioners,” as “[t]he text to the statute (section 718(f)) and GERS’s cited authorities do not support imposing an obligation solely on the GVI to the point of actuarial soundness,” the appeals court ruled.
The Third Circuit went on to state that the “statutes do not provide a mechanism for keeping GERS actuarily funded if that fixed-rate funding structure comes up short – whether because of proliferating unfunded mandates, GERS’s own mismanagement, flawed actuarial projections or the like.”
The appellate court said that “saddling the GVI alone with the obligation to fund the GERS to the point of actuarial soundness is, at best, inconsistent with the text of Section 718” and a “more natural reading of Section 718(f), then, is that actuarial soundness is a function of all of the following: the GVI’s contributions as employer, its employees’ contributions and GERS’s investment income earned through prudent financial decisions.”
Echoing the government’s argument that the remedy for GERS’s troubles could not be found in the courts, the Third Circuit in its opinion said, “Were we to cut that obligation on a rationale made of whole cloth, the system would remain insolvent. The citizens of the United States Virgin Islands – population 106,405 – simply cannot pay the necessary billions. The cure for GERS’s chronic underfunding is not judicial but legislative – if not at the territorial level, then perhaps on Capitol Hill.”
In its conclusion, the Third Circuit said that it had to “take off the table tens of millions of dollars in enhancements that were awarded to GERS under an unsupportable retroactive application of Virgin Islands law. We have no doubt that GERS needs more – possibly billions more – to fend off insolvency. But as members of the third branch, we can neither write legislation nor levy taxes. And we are powerless to re-write imperfect but unambiguous statutes even if doing so would make them better serve the needs of their intended beneficiaries.”