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GERS: PROBLEM IS IMBALANCE, NOT INVESTMENTS

Jan. 29, 2002 – The Government Employees Retirement System has not lost a penny in the Enron debacle or the troubles of the giant Kmart chain, officials told the Government Operations Committee Monday. That was the good news.
Laurence E. Bryan, GERS administrator, told the senators the system's investments were not affected by Enron or Kmart losses because of its reliance on investment managers "hired to perform with consistency within their area of expertise." Each manager must exceed the industry benchmark for his or her particular field, Bryan said.
What GERS has is a defined benefit plan with a well-structured portfolio to minimize against the impact of events such as the Enron meltdown, Bryan said. "Simply speaking, all of GERS' Enron stock was liquidated prior to the critical date," he said, and the same was true of the system's Kmart holdings.
Then there's the bad news.
It should be news to no one in the territory that the system is in trouble. Bryan said the most recent GERS actuarial study, performed by The Segal Co. in September 1999, concluded that current statutory government and member rates are insufficient to meet the cost of funding the system on an actuarial basis as required by law. The system's unfunded accrued liability was identified as $518 million at that time.
In other words, GERS is consistently paying out more in retirement benefits than it takes in through payroll deductions and government contributions. For Fiscal Year 2000, the system received $70 million in employer and employee contributions and paid out $90 million in benefits, Bryan said.
"In FY 2001, we had to liquidate $35.5 million in assets to fund the annuity payroll," he told the committee. "And so far in FY 2002, we have had to liquidate $4 million."
Carver Farrow, GERS board chair, said contributions currently are falling 6.6 percent below pension payouts.
Bryan pointed out that the government still owes the system $23.2 million for shortfalls in early-retirement plans enacted in 1994 and 1995. Also, he said, the Legislature in April 1998 repealed a V.I. Code requirement that the government pay administrative costs associated with the operation of the system, but GERS still is owed about $37 million for such expenses from fiscal years 1987-98.
The 1998 change in the V.I. Code did not eliminate the accrued debt, Bryan said, and GERS is suing the government in District Court to collect the money.
Investments doing well through FY 2000
Bryan, Farrow and GERS attorney Alfonso Nibbs noted with pride that the system's investments are holding up well. Bryan said the most recent audit, by KPMG for Fiscal Year 2000, confirmed that GERS had net assets of $1.3 billion available for benefits, an increase of $74.8 million from Fiscal Year 1999.
"These figures should put to rest the allegations that there were massive losses in the investments of GERS," Bryan said. "Given the state of the national and world economies over the period of the past two years, we are pleased with the results of our FY 2000 performance."
He said the annual average rates of return from other GERS investments are:
– Member loans – 4.8 percent.
– Orange Grove complex rentals on St. Croix – 5.9 percent.
– Havensight Mall rentals on St. Thomas – 11.9 percent.
The committee members took turns pledging their support for GERS in what appeared to be reaction to a Saturday meeting held by Advocates for Preservation of the Retirement System, a new citizens' group seeking the repeal of recent legislation which it claims is putting GERS on the road to bankruptcy.
Bryan was a guest speaker at the meeting on St. Thomas, which attracted more than 300 people. He was critical of the Legislature for, among other things, approving unfunded and underfunded projects. At Monday's hearing, he stressed the imbalance in what is being paid into and out of the retirement system, saying it is illegal.
Sen. Donald "Ducks" Cole said he was "sick and tired of hearing how the 24th Legislature is bankrupting the system." He told Bryan, "I am a friend of GERS."
Cole sponsored early retirement legislation and also a bill to give GERS more flexibility in handling its funds — allowing it to float bonds, exchange land and establish a line of credit. Cole and Sen. Carlton Dowe amended the bill to increase senators' maximum retirement benefits to 75 percent from 65 percent of final salaries, bringing them up to the same level of compensation as the GERS general membership. Bryan had said then that the amendment "corrects a major wrong, or oversight, in the existing law which reduces benefits to some, but not to all."
Gov. Charles W. Turnbull vetoed the measure, not because of the amendment but saying it would give GERS too much leverage. The Senate overrode the veto.
The increased level of benefits for Senate retirees is one of the two measures that the Advocates for Preservation group opposes; the other provides for certain Water and Power Authority hazardous duty employees to take early retirement.
At the time the bill with the Senate retirement benefits amendment was enacted, Cole had said that the system needed to diversify its investment, a position he has voiced for some time. The measure will help meet the demands of new early retirement programs which he aided in legislating earlier this year, he said.
Committee members attending the hearing in addition to the chair, Sen. Emmett Hansen II, were Sens. Adelbert Bryan, Cole, Roosevelt David, Dowe and Norma Pickard-Samuel. Sen. David Jones was absent.

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