Almost all the reforms laid out by the Senate for the Government Employees’ Retirement System have been implemented, the lawmakers were told Tuesday, but more needs to be done.
“The patient is no longer hemorrhaging, but he’s still bleeding.” Sen. Craig Barshinger said after the daylong hearing.
Barshinger’s comment referred to the retirement system’s $1.7 billion unfunded liability and the fact that it still pays out more each month in retirement benefits than it takes in from active employee contributions. That gap has been narrowed, he said, but the system is still running in the red.
Tuesday the Senate met as a “committee of the whole” to hear from GERS officials about implementation of reforms mandated by the 2005 bill.
GERS Administrator Austin Nibbs, Chief Financial Officer Joseph Boschulte, General Counsel Cathy Smith and actuary Howard Rog were among the GERS officials who spent six hours being peppered by the senators with questions that ranged from the unfunded liability that threatens the viability of the system to whether a shower is being built in the new GERS building under construction on St. Croix.
The unfunded liability is the amount of money owed to retirees for which the system is not bringing in any revenues. The issue goes back to the late 1980s, Boschulte said, and each year the amount balloons, creating fiscal instability that, left unresolved, could bring the system down.
Senate President Louis Hill said the problem has festered for decades because previous Legislatures had lacked discipline, acting to benefit individual members instead of GERS.
“Sometimes what is in the best interest of the member is not in the best interest of the system,” Hill said. “As a legislator and politician our inclination is the to look over the needs of the system for the needs of individual members. That is what led us to this unfunded liability. We have in the past as a legislative body looked out for the best interest of the members of the system instead of the best interest of the system.”
One potential fix is a proposed pension bond to generate about $550 million, Nibbs said, bringing the unfunded liability down “to almost $1.1 billion.”
Another possible solution is to use some of the revenues anticipated from the rum cover-over funds, which are expected to increase dramatically when Diageo’s Captain Morgan’s distillery begins production next year and with the expansion of the Cruzan Rum distillery.
From a purely actuarial standpoint, Hog said, the depletion of revenues could be staunched if the employer and employee contributions to GERS were 43 percent of the payroll, but that is probably impractical from a political standpoint. As it stands, the government contributes 17.5 percent of its payroll to the fund, and employees contribute 8 percent, totaling 25.5 percent.
In the past the system’s investment portfolio made up the difference between what comes in as contributions and what goes out as benefit payments. But the weakened economy and near collapse of the financial system in 2008 badly depleted those investments. The portfolio has begun to turn around, and now stands at $1.06 billion.
Among the many other issues discussed were:
• Mortgage rates; Sen. Terrence “Positive” Nelson said GERS offers a terrible rate, at 8 percent almost twice what some commercial lenders offer. Nibbs and GERS board member Raymond James said it is not the system’s main purpose to compete with commercial lenders and the rate is set by board policy.
• The new GERS office on St. Croix; Hill asked Nibbs about reports he’d heard that the $11 million building still under construction would include showers and offices for all the board members. Nibbs explained that the office he has used on St. Thomas for three years has a small shower, which he never uses, so the new building includes that amenity. It also will have a single office for use by board members when business requires it. The entire lower level of the building is being built as commercial and office space for rent. Nibbs said he’s been fielding calls almost every day about the availability of that space.
