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Report: GERS Fund in Danger of Insolvency

Dec. 15, 2005 – A draft report examining the financial solvency of the Government Employees Retirement System confirmed the fund is in serious financial trouble.
During a Thursday meeting of the GERS Board of Trustees, Howard Rog, vice president and actuary for the Segal Company, said that the fund will become insolvent unless drastic action is taken.
Rog, whose figures were from Sept. 30, 2003, said that the GERS solvency situation was probably worse now.
"When things go bad, they go bad quickly," he said.
The fiscal stability of the GERS has been a concern of V.I. residents and government officials for several years. When Rog was making some of his dire predictions, he said, "I know I am preaching to the choir. You already know this."
Acting GERS Chairman Marvin Pickering acknowledged that "the system will run out of money if we don't get contributions up or a large infusion of cash."
Rog then added, "The sooner the better."
In 2003, according to Rog, GERS spent $138 million while only taking $82 million in contributions. He said that a negative cash flow, in itself, was not that bad and that some of the disparity could be made up with income from $1.3 billion in GERS assets. However, he said that the negative cash flow combined with the lack of much-needed contributions to the GERS fund could have "serious consequences." The assets, which are earning investment income, could start to dwindle, causing a downward spiral.
In 2003 the GERS fund needed $922 million more than it had, according to Rog.
Rog also pointed to other exacerbating factors: In 1991 there were 11,766 government workers contributing to the GERS. In 2003 the number had dropped to 10,037. In the same period, the number drawing benefits more than doubled — from 2,591 to 5,660. Additionally, the average pension in 1991 was $10,500 annually. By 2003, it had nearly doubled to $20,075.
Also during Thursday's meeting, the GERS board received an audit report for fiscal year 2004. Andre Perez of accounting firm KPMG said that the firm was able to conduct its audit earlier this year because cooperation from the GERS staff was good and KPMG was able to easily obtain needed information. He said the firm saw no significant problems in the fiscal year 2004 audit from an accounting perspective. However, he said there were some lingering problems from previous years, noting that a $10.5 million overdraft from the V.I. Department of Finance a couple years ago has yet to be reconciled.
In other news, the GERS board this week hired Trading Partners Inc. to oversee changes in the fund's management.
Trading Partners Inc. beat out three other firms – Magna Securities, Seslia Securities, and State Street Global Advisors — who also bid for the GERS contract.
Willis C. Todmann, acting GERS administrator, said funds investments were previously managed in-house. The cost of the management will be contingent on the amount of funds being handled.

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