Dec. 16, 2008 — Faced with a phalanx of government economic advisors urging a delay, the board of trustees of the Government Employees' Retirement System voted Tuesday to postpone implementing changes that threw government workers into "a panic."
The retirement system was poised to implement the changes — authorized by the Legislature in 2005 — at the beginning of the year. But word of the impending changes caused "panic" among government workers, according to Nathan Simmonds, senior policy advisor to Gov. John deJongh Jr. Simmonds led a delegation of six members of the governor's economic advisors to the GERS board meeting Tuesday on St. Croix.
GERS will delay implementation of the changes for no more than one year. The system faces an unfunded liability that has grown to $1.2 billion, and "the day of reckoning" is drawing closer, according to Trustee Yvonne Bowsky. Each month the system pays out more in benefits than it takes in in employee contributions.
"We've got to do something to save the system or there will be no system," she said.
To deal with the problem, in 2005 the Legislature passed a series of reforms. Key among them were increases in employee and employer contributions, and a measure changing the way the retirement system handles accrued leave. Under the longstanding practice, employees who did not use allowed leave for a variety of causes could accrue those days and, upon retirement, apply them to their years of service, raising the value of their annuity. But they did not contribute to the retirement fund for that additional service credit. So additional benefits have been paid out without an accompanying increase in money going in.
Under the new rules, the employees would still receive credited service benefits, in essence counting the unused leave as time worked, which could result in higher annual retirement benefits. However, the employees would have to pay their contribution on the time accrued. And retirement benefits will not begin until the full amount of employee benefit has been paid. Under the old rules, the employee had five years to make all contributions.
At a November meeting, the board announced it would implement the new system beginning Jan. 1, and in early December sent a memo to various member agencies and organizations.
The news caused alarm among workers, Simmonds said, leading many who were near retirement to consider leaving their government jobs Dec. 31 to avoid getting affected by the new rules.
Simmonds did not downplay the importance of closing the gap between income and outgo for the system, but said delaying the start of the new rules would give the board and the government time to work together to find solutions and funding, and to educate the employees on the coming changes and how they will affect the employees' retirement.
During negotiations over the retirement-reform law three year ago, there had been mention of plugging the gap with a pension-obligation bonds. Trustees raised the possibility again Tuesday, but Julito Francis, director of finance and administration for the Public Finance Authority, quashed the notion. The current downturn that has gripped the world economy has "hammered" the bond market, Francis said, and there would simply be no takers for the bonds if the territory decided to try that route.
"There is no market," he said.
The trustees pressed Simmonds on a timeline for resolving the issue, and for some idea of what government funding might be available, but he wouldn't make a firm commitment. Jan. 1, 2010, seemed an appropriate time to have resolved the issue, he said, but he wouldn't be pinned down. As to funding, Simmonds said, "The government is aware there are costs involved." He continued, "The government will do the best it can."
After the presentation by the governor's team, the board approved a motion from Trustee Raymond James to delay the implementation of the controversial measures "by no more than one year" while GERS works with the governor's office to find solutions to the increasing budget problem.
The vote to delay was 4-0, with three members not present and excused. The four in attendance voting yes were Bowsky, James, Marvin Pickering and Chairman Vincent Liger. Absent were Carver Farrow, Desmond Maynard and Leona Smith.
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