In an effort to bring focus and clarity to the ongoing challenges facing the Government Employees Retirment System, Gov. John P. deJongh convened a one-day summit at the Mariott Frenchman’s Reef Wednesday that included government officials, members of the GERS board of trustees, representatives of organized labor, and members of the 28th Legislature.
According to deJongh, the underfunding of monies owed to GERS by the government has continued year after year, growing from $8 million to more than $1.2 billion and "is currently the biggest financial challenge that we face." Come budget time every year, the GERS monies owed have been put on the back burner.
"We as a government have an obligation to GERS, and to our government workers," said deJongh. "It is a legal, iron-clad, and in my opinion, moral obligation."
DeJongh concluded his opening remarks by saying, "Given the fact that we are borrowing just to stay open, the only way we will be able to fund GERS will be with the revenue generated by the Diageo rum."
The summit featured presentations by GERS Administrator Austin Nibbs, who outlined the current status of the retirement system, and GERS Actuary Howard Rog, who discussed the system’s unfunded liability, its causes and effects and suggestions for reducing and eliminating the unfunded mandate.
Rog told attendees that GERS will run out of assets in the next 14-19 years unless the system gets additional financial resources.
"Solving the unfunded liability," he said, "will help the cash flow, which really needs to be the focus."
In 2007, Governor de Jongh suggested using Pension Obligation Bonds to pay a portion of GERS’ unfunded liability and subsequently received authorization from the Senate to float bonds of as much as $600 million but the government was not in a position to shoulder the extra debt at that time. It is projected that with the construction of the new Diageo distillery on St. Croix, the government will have a revenue stream that is predictable. The advantage of the bonds was explained in detail by David Paul, financial advisor to the Virgin Islands Public Finance Authority. Using Pension Obligation Bonds would provide the GERS portfolio with an influx of cash while minimizing the unfunded liability monies owed by the government.
Legislative action taken in 2005 created a Tier II system, which reduced benefits to government employees hired on or after Oct. 1, 2005, and amended portions of the GERS statute. The Tier II system has never been implemented by GERS. Senator Louis Hill demanded to know why nothing had been done, saying that it was "totally unacceptable." Nibbs replied that the plan was to implement Tier II on Wednesday, the same day as the summit, but GERS was asked by the administration to hold off.
"No employee hired after October 2005," said Hill, "is going to be willing to come up with additional contributions owed and take a reduction in benefits four years after the fact."
Hill plans to initiate legislative action to implement the Tier II system effective in January of 2010.
DeJongh wrapped up the summit by reiterating his belief that with the Diageo rum revenues, the government will have the ability to "take care of an obligation we have ignored for a long time."