The 31st Legislature Committee of the whole met Sept. 1 in Cruz Bay to begin a series of hearings about the government pension system.
CRUZ BAY — Lawmakers with the 31st Legislature chose the Cruz Bay Legislative Conference Room at the first stop on a territory wide discussion about the future of the government pension system.
The future, as described by officials of the Government Employees Retirement System was dire.
The pension system will have used up all of their assets needed for investment by 2025, GERS Chairman Wilbur Callender and Administrator Austin Nibbs testified. By then the only revenues the system will have to pay pensions will come from government workers on the job, paying deductions in anticipation of their own retirements, they added.
Annuity Checks Cut by Half
If that scenario is allowed to continue without any corrections put in place retirees from the government system can expect to see their annuity checks cut by more than half, the GERS officials said.
That assessment was offered as lawmakers considered Bill No. 31-0146, a measure that if passed would amend Title 3 of the Virgin Islands Code, Chapters 27 and 28A pertaining to the the retirement of government employees.
The GERS officials also cautioned about the consequences of inaction, citing Act. No. 6905, passed in 2007 and signed by former Governor John de Jongh. That measure called for an infusion of $600 million into the GERS as a hedge against having to liquidate the system’s assets.
Lawmakers acted; the governor signed the measure into law, but then nothing happened.
“We were shocked,” Nibbs said. At the time he was acting Finance commissioner. Some time later, he said he asked de Jongh why he failed to act. The former governor told him if the $600 million was invested at the time most of it would have been lost in a tumultuous market.
Now, eight years later, some lawmakers speaking at the Sept. 1 Senate hearing expressed trepidation over the urgent need to make up for lost time.
Since 2007 the government workforce shrunk by 20 percent, said GERS actuary Leon Joyner. The ratio of persons paying into the pension system also shrunk away from the ideal of 3.2-to-1.
In 2015, Joyner said, the rate was more like 1.25-to-1.
Additional pressure, is coming in the form of a two-tier pension system where certain categories of government employees, like judges, lawmakers, utility line workers, police and firefighters, were allowed to retire earlier, having made fewer contributions, they said. That system is scheduled to begin in October.
He was joined in his commentary by GERS investment consultant Leandro Festino, who said as disturbing as the situation appears, the worst case scenario can be averted by committed government leaders prepared to make hard choices.
“Yes, we’re in a crisis but the good news is there is still time to fix it and improve the system,” Festino said.
Some lawmakers agreed about the difficulties to come if the pension system is to be saved.
“As the chairman of the Finance Committee I can tell you that the problem is not the $600 million pension obligation fund,” said Sen. Clifford Graham. “The problem is how to pay for it.”
“The reality is that seven years ago the government was in a better position to manage a $600 million dollar loan,” Senator-At-Large Almando “Rocky” Liburd agreed.
Out of Money by 2015?
In giving their assessment about the health of the pension system, GERS officials presented a chart that showed that if the system were to continue to invest its assets expecting a annual return of seven percent, it would run out of money by 2025. They also cautioned that if there were an unexpected upheaval in global investment markets, it’s possible the crash could happen five years sooner, in 2020.
At that point, Nibbs said, there would be nothing left for the GERS to invest. The only funds it would be able to pay out would come directly from government employees on the job, paying deductions towards their future annuities.
If that were to happen, he said, retirees depending on those funds could only expect to receive pennies on the dollar. Those expecting to receive $1,000 a month might instead receive about $450 a month.
In his testimony GERS Actuary Leon Joyner affirmed the statements made by Callender and Nibbs.
“By 2025 the system will be out of money,” Joyner said.
Most recently, the GERS took one step towards halting the financial slide by suspending its loan operation to government workers and employees.
Officials should figure out how to engage stakeholders, particularly government workers, letting them know how serious the situation has become and encouraging them to support reform measures, Senate President Neville James said.