Brutal Consequences May Be Coming for Retirees

GERS board member Stephen Cohen takes part in the video conferences from St. Croix to St. Thomas. (Source photo by Don Buchanan)
GERS board member Stephen Cohen takes part in the video conferences from St. Croix to St. Thomas. (Source photo by Don Buchanan)

Government employees resigning and taking out what they have in the Government Employees Retirement System will accelerate the system’s free fall to bankruptcy.

The prediction has been that the system will run out of funds to pay retirees in 2023 or sooner.

That prediction is based upon a certain number of government employees making contributions to the system, but that number may be diminishing faster than predictions allowed.

Board member Stephen Cohen told the Source before a regular meeting of the GERS board of trustees Thursday, Dec. 19, the number of non-vested employees leaving the system was a serious concern.

GERS Administrator Austin Nibbs reporting to the board elaborated on the issue and said, “In my opinion it is only going to get worse.” He said non-vested employees are “leaving the system in droves.”

After a V.I. government employee completes 10 years of service, he or she becomes vested in the system. This is good for the employee when you have a healthy retirement system. However, with the precariousness of GERS, it can be bad. When employees become vested in the system, they are no longer able to take the funds they contributed to the system out. They are locked in.

Many employees are choosing to leave before they get locked in. According to Nibbs, the system paid out over $8 million to non-vested employee leaving the government this year.

The ratio of workers paying into the system to those taking money out is unhealthy, with more people taking out than putting in. Nibbs told the board there are 8,265 active employees contributing and 8,669 retirees taking out of the system. The treasurer’s report showed that in November the system collected $11.6 million (that includes rent payments and loan repayments) and paid out $23.6 million.

The regular rising contributions made by active government employees might also be discouraging workers from continuing their employment with the government.

Active employees now contribute 11 percent or more of their salary to GERS. Retirees presently receiving benefits were probably contributing 6 percent or less to GERS.

Board Chair Wilbur Callendar reported on a meeting he had last month with Gov. Albert Bryan Jr. and members of the Senate. He said he was pleased with the attendance at the meeting, but disappointed with how quickly the board’s proposal to extend the life of the system was dismissed “without discussing the merits of the proposal.”

The board’s proposal, according to Callendar, was to reduce annuities by 30 percent. He said that, if something is not done soon “the consequences will be brutal.” He said annuities would have to be reduced by 75 percent if something is not done.

He said the officials at the meeting were not focused on the big picture. Instead they asked questions about the sale of Carambola, the liquidation of an agreement with WICO, the loan program and late annuity payments. He asked the board, “Where are their priorities?”

He also addressed the proposal the governor sent to the Senate which would allow fees and licenses from legalizing marijuana to go into the retirement system. He noted that projected annual income from marijuana would not make one month of annuity payments.

When the Source asked Nibbs about that proposal, he replied, “We thank the plan sponsor and the Legislature for whatever funds are identified for funding the GERS unfunded liability. However, the system’s obligation to the retirees is $21 million monthly. The cannabis funding expected will only be $15 million annually. As you can see from the treasurer’s report, we collected less than $10 million in contributions in the month of November 2019. I note that the deficit between contributions collected and annuity payments and expenses is approximately $150 million annually.”

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