The Government Employee Retirement System will go broke and cease being able to pay out benefits in about a decade if contributions to the plan do not sharply increase and future benefits are not reined in, Administrator Austin Nibbs told the Senate on Thursday. It is a message Nibbs has delivered to the Legislature every time he has testified before it for the last six years.
Total contributions received in Fiscal Year 2012 were about $144.9 million less than what was paid out to retirees – an increase in the flow of red ink from the $88 million deficit in 2011. For the 12 month period ending Sept. 30, total contributions were about $101.4 million less than benefits paid out and expenses of the system, Nibbs testified.
The ration of active members to retirees receiving benefits has worsened further, due to government layoffs and retirements, he said. It has decreased from a 1.14 to 1 ratio in FY12 – which was a record low at the time – to a new record low of 1.1 to 1 for FY13.
Active members in the system have decreased from 10,731 as of Sept. 30, 2011, to 9,240 a year later. Beneficiaries increased from 7,868 to 8,362 over the same period, Nibbs said.
Adding to the strain, in a June 2013 report, GERS actuary The Segal Company estimated that up to $47 million in employer contributions are potentially due the system as of Oct. 1, 2011, including all the autonomous agencies like hospitals and the University of the Virgin Islands. The central government disputes that total and GERS has been trying to negotiate a settlement for 10 months, Nibbs said.
This year, GERS has $3.4 million in outstanding employer contributions, with $2.5 million of it owed by Gov. Juan F. Luis Hospital. The V.I. Water and Power Authority is listed as owing $916,000.
The market value of the GERS portfolio shrank from $1 billion as of June 30, 2012, to $960.9 million one year later; a decrease of $46.7 million. The portfolio earned $24.4 million in income and gained in value by $79.5 million, but to meet obligations, GERS sold off $150.7 million in assets, Nibbs said.
The system overall earned 5.3 percent on its investments for the year as of June 30, and has averaged 9.3 percent since its 1981 inception.
To fix the system and keep it solvent for future retirees, Nibbs said "comprehensive reform" is needed, outlining both the GERS governing board’s recommendations and the set of recommendations released earlier this year by the governor’s pension reform task force. (See related links below)
The governor’s report recommends changes to retirement age, suspension of cost of living adjustments, and increases in employee and employer contribution rates, as well as committing 2 percent of rum excise tax receipts to pay the increase in employer contributions.
Regular Tier II government employees would not be able to collect retirement until they have served at least 10 years and are at least 62 years old. Class III (hazardous duty) government employees would have to wait until age 55 with 25 years of service – or age 60 with 10 years of service – eliminating the current system allowing retiring at any age if they have served 20 years.
It also recommends freezing all cost of living adjustments for at least five years.
The report suggests two options for increasing contributions and adjusting benefits, both of which would have employer contributions increase by 2 percent and employee contributions by 1 percent, for the next several years, while reducing Tier I benefits by 10 percent.
It recommends legislation to increase judges’ contributions to 17 percent for new judges and increasing contributions for sitting judges over several years until they reach 17 percent.
That report and the GERS board’s recommendations overlap "98 percent," Nibbs said.
They would recommend 3 percent of rum revenues be devoted to shoring up GERS, and there are items in the GERS report that are not in the task force report, so GERS urges the Legislature to "merge the two and create a comprehensive piece of legislation," Nibbs said.
GERS was before the Senate to discuss its 2014 operating budget. Since a 1998 act of the Legislature, GERS has financed its own operations instead of having the government pay administrative costs, Nibbs said. The total budget for GERS is projected at around $15.9 million, he told the senators.
Of that, $6.2 million is for wages and salaries, $1.95 million for employer benefit contributions, and $3.5 million for "other services and charges" such as software licenses and professional contracts. Utilities are budgeted at $923,000 and smaller expenses round out their budget.
No votes were taken at the information gathering hearing. Committee members present included Sens. Clifford Graham, Myron Jackson, Terrence “Positive” Nelson, and Nereida “Nellie” Rivera-O’Reilly.