As Senate hearings on preventing the Government Employee Retirement System from going bankrupt by 2022 began Tuesday, many retirees and senators focused on rearranging the GERS governing board, criticizing its small alternative investment program and preventing benefit cuts, rather than fixing the system.

Since at least the late 1990s, every GERS administrator has urgently warned the V.I. Legislature that unfunded legislative mandates and early retirement incentives, combined with inadequate contribution rates for the pension levels, were bankrupting the system. Eleven years ago, in 2003, then-GERS Administrator Laurence Bryan warned the Legislature the pension plan would be broke by 2023. Some reforms were enacted in 2005 but not fully implemented at the time. (See Related Links below)

On Tuesday, GERS Administrator Austin Nibbs testified to the Committee of the Whole that, if nothing is done, the system will have sold off all its assets and be unable to meet retiree pension payments by 2022 – or less than eight years.

Gov. John deJongh Jr. submitted draft legislation with major reforms to the government’s pension system in March. [GERS Bill]

Since then, a variety of factors have worsened the situation, so now the unfunded liability stands at more than $1.8 billion and GERS projects the system will be out of money by 2023 if nothing significant is done.

In 2005 the Legislature passed a reform act, increasing contributions and creating two tiers of employees with younger employees getting fewer benefits for the same contributions. But the reform is not sufficient and has also not been fully implemented, so the problems remain severe.

In order for the retirement system to actually pay for itself and be solvent, GERS actuaries have found employees and employers would have to contribute 43.2 percent of payroll, according to the report. They are now only paying in 25.5 percent – not nearly enough to support the current benefits and growing population of retirees.

DeJongh’s legislation was a collaborative effort between the governor’s office, the GERS Board of Trustees and the governor’s Pension Reform Task Force.

According to the governor, projections suggest the recommended measures will halt the declining percentage of funded GERS liability by 2018 and reverse the trend by 2024.

The bill would take four major steps to reduce the existing pension debt, estimated to be $1.8 billion in unfunded liability and a continuing annual disbursement that exceeds revenues by about $80 million. Those steps are:
– asking employers and employees to contribute a larger amount toward pension benefits;
– reducing benefits already being received by 10 percent;
– increasing the age and years of service needed before retiring;
– limiting the annual cost of living increase;
– and changing the formula used to calculate benefits.

Senate President Shawn-Michael Malone opened Tuesday’s hearing by saying the Senate needed to look at the proposed legislation, gather testimony and craft a comprehensive solution of its own.

As the hearing progressed, senators and testifiers were broadly, if reluctantly, supportive of increased pension contributions and possibly reduced benefits for new government employees, as the price for a working pension system. At the same time, all testifiers and senators were adamant that no benefits should be cut for those who are already retired.

"We cannot affect people who are already in the system. I think it is a violation of the law to do so," said Sen. Terrence "Positive" Nelson.

Barbara Isaac, Vivian Mathews, Madeline Lake-Thomas and several other V.I. government retirees and members of pension advocacy groups all testified vehemently in opposition to cutting current benefits. Retirees focused on the question of fairness and the fact that retirees live on fixed, low incomes, while prices rise. Some senators and GERS officials also said that cutting current benefits would be likely to produce a lot of expensive, time consuming lawsuits.

Sen. Craig Barshinger asked Nibbs to give a succinct explanation of how to fix the pension system.

"It needs a large infusion of cash, an increase in contribution rates and a suspension of COLA (cost of living adjustment)," Nibbs said.

Barshinger said the Senate needed to act and "resolve to do something that is actuarially sound," to fix the system, “not just beat up on GERS."

He too said he opposed cutting current benefits, adding that he believed courts had ruled that the financial problems of a pension must be catastrophic and benefit cuts unavoidable before they are acceptable. "Are we at that point now?" Barshinger asked.

Nibbs said the territory is not yet at that point and the system can be salvaged without that level of draconian action, if and only if strong measures are taken quickly.

Sen. Clarence Payne castigated Nibbs for not making senators act sooner. "You have been saying the same thing for the last seven years. You knew these things. You saw it coming," Payne said. "At what point will our body that is responsible for our annuity going to say enough is enough?" he said.

"Three years ago we submitted legislation," Nibbs replied.

"But you sound so calm about it," Payne said.

"What else can I do?" Nibbs replied, whereupon Payne affected a mocking tone of voice, repeating back, "What else can I do?" to Nibbs.

GERS officials have urgently warned senators about the pension system’s unfunded liability several times a year since the Source began publishing in 1999. (See related links below)

Some senators focused attention on the retirement system’s alternative investment loans to Carambola Resort and Seaborne Airlines, suggesting these played some role in the crisis.

"I believe in shared sacrifice but I also believe in responsible management," said Nereida "Nellie" Rivera-O’Reilly. "GERS has invested in a number of investments that have resulted in loss to the system and every member of the system feels the impact of those losses. … We need to expose what happened at Carambola. If somebody doesn’t go to jail then something is wrong in this territory," she said, pointing to a forensic audit performed by GERS that found questionable financial transactions at Carambola while it was privately owned.

Sen. Alicia "Chucky" Hansen said Carambola and Seaborne received "special treatment," and therefore retirees should also receive special treatment.

"Just the way you can take the risk for Carambola and Seaborne and the rest of them you can do with retirees," Hansen said. "That is the problem I have with the entire system. The little guy they say is always collapsing the system and the big guys they can always settle with," she said.

GERS projects a profit on the sale of the Carambola property, based on the value of the underlying land and buildings. However, if the Carambola property were eventually sold for $1 and the loan became a total loss of $15 million that total loss would account for 0.09 percent of the pension’s unfunded liability of $1.6 billion. The Seaborne loan was profitable for the pension system.

Malone said there will be another hearing on St. Croix on Friday at 10 a.m. After that, "hopefully we will have some type of legislation," which would then go through another set of hearings and be voted on later in the year, Malone said.