July 7, 2005 – After two Senate hearings this week, most officials and community members agree the Government Employee Retirement System fund is in serious trouble. But there is little agreement about why the problems exist or what should be done about them.
Tuesday's hearing on the Retirement System Reform Act of 2005 concentrated on how bad the figures were. No one argued that the debt is quickly approaching the $1 billion mark. (See "GERS Debt Approaching $1 Billion Mark").
That debt was acknowledged at Wednesday's hearing, but representatives from the AARP and Generation Now wanted to know from senators and GERS officials how it happened and how the problem was going to be resolved.
Hugo Dennis, state president of the V.I. chapter of the AARP, questioned Howard Rog, chief actuary and consultant for the GERS board, about how to fix the system. Rog's answer was simple: "You need more money — the sooner the better."
Rog tried to remain noncommittal about where that money should come from, and when he mentioned that higher contributions could alleviate the problem, he found himself under fire from several sides. Rog quickly clarified that the higher contributions could come from the government instead of from the employee.
Presently the employee makes an 8 percent payroll contribution to the retirement fund, while the government makes a 14 percent contribution.
Much of the discussion has questioned whether the government has been making its contribution to the fund. Sen. Terrence "Positive" Nelson said he was against irresponsible government, and that he thought the government's relationship to the fund has been irresponsible.
Sen. Louis Hill, who is sponsoring the reform bill, said Thursday the government has been making contributions to the fund for the last four years on a timely basis. In previous years it might have made its contributions late, Hill said, but he did not think the government owed the fund any money.
However, he did not leave the government off the hook. Hill said the granting of "generous early retirement packages" had a detrimental effect on the fund. He said that if an employee retired after 25 years instead of 30 years, not only was she getting her benefits early, but she was not making contributions during those five years.
There are basically two problems with the fund right now, Hill said: its deficit and its long-term viability.
Rog threw out the figure of $600 million dollars as the immediate influx in the system that would save it. He said this could be done in the form of pension obligation bonds. The bond debt would be the government's, not the fund's debt.
Hill did not sound optimistic about this solution the day after the hearing. "How would we pay that debt back?" he asked. "Are we going to raise taxes? That would be a challenge."
The proposed bill addresses the long-term problems of the fund by enacting a two-tier system. This system would force new hires to make more contribution, but receive lower benefits.
Nelson, at the hearing, was not convinced. He said, "This system is not ailing. Why are we talking about decreasing benefits?"
Dennis, who testified Tuesday mostly about dramatic shortfalls predicted in the fund, asked questions Wednesday.
He wanted to know how the fund, which started in 1959 with all employees contributing and no one taking out money, could have gotten into such a mess. He was told the negative cash flow began in 1991.
He then wanted to know how it could be guaranteed that the GERS board was getting "the best bang for its buck" in investments.
Board member Marvin Pickering and Willis Todmann, acting GERS administrator, outlined a long procedure the board went through hiring fund managers and meeting with the fund managers regularly during the year. The benchmark for such funds is about 8 percent. The board and its representatives indicated that its investments overall had been doing that well.
Some community members questioned whether this bill was actually addressing the problems with the funds. Arnold M. Golden, AARP monitor of GERS and a former senator, said Wednesday that the sense of urgency concerning the possible demise of GERS within the decade has eluded many.
He urged the GERS to discontinue early retirements and inefficient lending programs.
He said that GERS was conceived as a supplement to the Social Security system, and as Congress contemplates changing Social Security, this would not be a good time for GERS to go broke. Golden asked that a "reasonable" cap be placed on those receiving a high income from the fund.
"There is a very real need for increases in contribution by GERS members as well as the government in order to stabilize the system and begin the recovery," Golden said.
The reform act would give the GERS board the ability to raise the contribution rates of both the government and the employees. However, the contribution rate could not be raised more than 1 percent each year.
The act also would raise board member stipends from $50 a meeting to $75 a meeting. It would also add certain education and experience qualifications for serving on the board.
Kevin A. Williams Sr., chair of the public policy committee of Generation Now, addressed those issues and other specifics of the act. He stated that something had to be done about "double dipping."
He said his group is dedicated to preserving GERS, and that the act was good because it would "alleviate the hemorrhaging by granting GERS tax-exempt status."
Carver Farrow, GERS board chairman, was unable to attend because of illness. In his opening statement, Pickering, who serves as vice chair, said the GERS agreed with many elements of the bill. However, he did raise questions about why the bill would establish new qualifications for members of the board.
"This provision is puzzling to us," Pickering said. "Is it being suggested that the board of trustees is being blamed somehow or in some fashion for the unfunded liability of the system? If it is, this blame is misplaced. It has been determined time after time that the primary reason for this precarious position of the unfunded liability of GERS lies with the unfunded mandates that were enacted by this very body. Individuals that have at least a bachelor's degree and five years experience in the disciplines of law, medicine, tax, real estate, insurance, etc., cannot ensure that the system would be fully funded."
Golden concluded his remarks, "AARP Virgin Islands looks forward to a full and lively debate that will take into consideration the concerns of all residents."
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