June 22, 2004 – Reduced benefits and increased contributions were touted before a Senate committee on Monday night as the changes necessary to keep the over-extended Government Employees Retirement System from collapsing in the foreseeable future.
The changes would be the first since the retirement benefits system was created more than four decades ago, representatives of the GERS board of trustees told the Labor and Veterans Affairs Committee.
Submitted by the GERS board with Sen. Louis Hill as the main sponsor, the proposal calls for increases in the level of contributions by both employees and the V.I. government. For workers, there would be separate schedules of increases, one for current workers and the other for future hires, beginning in fiscal year 2005.
The meeting, which began about 7 p.m. Monday evening, was the second of the day for the committee, chaired by Sen. Norman Jn Baptiste. During the day, the senators took testimony on a private-sector proposal to build an industrial complex on St. Croix. (See "WAPA Deal Key to Industrial Complex, Senators Told".)
For FY 2005, new hires would pay 2 percent over the current employee contribution rate of 8.2 percent. Current employees' contributions would rise to 9.2 percent and then continue increasing 1 percent annually over the next five years.
"It is imperative that we repair this system," Raymond T. James, GERS board chair, told the committee. As proposed, he said, benefits for new hires "would be less" in comparison with those of retirees and existing employees, but "will still be more lucrative that any other system."
GERS board member Yvonne E. Bowsky said the proposal would have "no negative impact on unionized employees." She said it seeks to make the system more profitable, so that when employees retire, "there will be a viable system to pay them their well-earned benefits."
Baptiste expressed concern that new employees "will carry the burden of the system."
But James maintained that increasing contributions is the only way to reduce the system's unfunded liability. He said Puerto Rico, New York and other states have moved to reduce their unfunded liability by instituting a "second tier" rate schedule for new hires, increasing all other contributions and reducing benefits.
The GERS board has been raising its concerns for several years about having to use investment earnings to fund retiree payouts. James said the government contributes about $50 million a year to the system and employee payouts amount to $23 million, for a total of some $73 million. "However, we pay $100 million a year in annuities to retirees," he stated, tapping into investment earnings to cover the shortfall.
James pointed out that "the government is up to date" with its contributions.
White noted that the proposal had been written before 2003 and revised in July 2003. He asked why the witnesses had only recently received a copy. "There is too much horse trading going on," he said, suggesting that the measure has been held up because of party politics and the desire of some senators to give themselves "full pension after six or eight years."
Under questioning from several senators, James stated that he knows of no proposal in Government House or the Legislature to change the retirement benefits for senators.
Hill, who signed on as the main sponsor even though the bill was created before he was elected to the Senate, said his interest is in dealing with the needed reforms. He said he is prepared to ask that the bill be "pro forma-ed" to the committee of jurisdiction so it can be voted upon by senators.
Hill also said he will be scheduling town meetings and interactive dialogues to help stakeholders become more knowledgeable about the proposed reforms.
Also testifying at the meeting were representatives of the firefighters and police unions.
Committee members present were Sens. Baptiste, Hill, Usie Richards and White. Sen. Douglas Canton Jr. was excused.
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