DeJongh submits legislation to overhaul pension system

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Gov. John deJongh Jr. submitted a hefty piece of legislation to the V.I. Legislature on Wednesday that would have a serious impact on the territory's pension system.

The legislation is the result of a task force report issued last year.

The task force's goal was to find solutions to the government's ailing pension system.

The system's unfunded liability - the difference between what is being paid into the system in contributions and the obligation to pay out all retirement benefits - currently stands at about $1.8 billion.

During the last two decades, the unfunded liability has grown because of insufficient contributions, a ratio of fewer active employees to retired employees and unfunded legislative mandates, such as early retirement packages.

The 34-page bill deJongh submitted to Senate President Shawn-Michael Malone on Wednesday includes many of the task force recommendations.

The bill is the first GERS reform legislation to be sent to the Senate to consider.

The Senate president's office said the governor's bill has been distributed to all senators and will be heard in the Senate Finance Committee in the near future.

In his letter to Malone, the governor said he recognizes that the changes will hurt but said it is for the good of the system.

"The corrective measures to be implemented will not be pleasant for any of the parties involved. Increased contributions will be required by current employees and to a much larger extent by government employers, which will necessarily have a material and growing impact on the General Fund budget over the coming years, and therefore, impact all across our community," deJongh said.

The proposed legislation is projected to halt the declining percentage of the GERS liability by 2018, and reverse the trend by 2024, according to Government House.

The governor outlined these steps addressed by the legislation to reduce the unfunded liability:

- Asking employers and employees to contribute a larger amount toward pension benefits. The bill raises the employee contribution a percentage point each year for the next seven years, resulting in a 15 percent contribution rate by 2021. The government's contribution rate also will increase gradually, hitting 31.5 percent by 2021.

- Raising contribution rates for senators and judges.

- Reducing retirees' current benefits by 10 percent.

- Increasing the age and years of service needed before retiring. The bill would increase the early retirement age from 50 to 55 and the regular retirement age from 60 to 65.

- Limiting the annual cost of living increase. Under the bill, the cost of living annuity will be suspended until 2019, at which point the GERS board will review the matter every five years.

- Changing the formula used to calculate benefits.

"As difficult as this challenge is, the consequence of inaction is greater. Simply stated, if we fail to act, within a few short years the system will no longer have the capacity to meet its obligations to retirees on an annual basis," deJongh said.

In May 2012, deJongh signed an executive order to establish the Pension Reform Task Force. The recommendation to establish the group came from an Inspector General audit report of GERS.

DeJongh appointed members from the territory's chambers of commerce, the Central Labor Council, the Senate Finance Committee chairperson or post-auditor, the director of the Office of Management and Budget, the GERS administrator, the GERS board chairman and the governor's deputy chief of staff.

An advisory committee also was formed that included many of the same representatives on the task force, as well as representatives from AARP, the local group Advocates for the Preservation of GERS, V.I. Finance commissioner, director of Personnel, the GERS actuary and the government's financial adviser.

The task force began meeting in the fall of 2012 and submitted the final report to the governor on April 29.

The recommendations were submitted to the Senate in May.

- Contact reporter Aldeth Lewin at 714-9111 or email

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