GERS raises employer, employee contribution rates despite FY 2014 budget implications
Published: September 27, 2013
Font size: [A] [A] [A]
ST. THOMAS - The Government Employees Retirement System board voted Thursday to inject steep hikes into the employer and employee contribution rates starting Oct. 1.
The action comes on the tail end of a budget season in which departments and agencies have spent months drawing up Fiscal Year 2014 budgets based on current rates.
Board member Edgar Ross, who has been championing the move in meetings since October, called for the motion to increase employer rates by 3 percentage points and raise employee rates by 1 percentage point consecutively and cumulatively during the next three fiscal years. Currently, government departments pay 17.5 percent of an employees' salary to GERS annually, and employees pay 8 percent of their salary separately. The increases authorized Thursday represent an increase of 17.14 percent above the contribution rate for employers and 12.5 percent for employees, in the first year alone.
At the meeting, Ross said that board members at a retreat in the summer of 2012 had agreed on the necessity of rate increases to solve the retirement system's unfunded liability. When the idea was presented to the governor, he told GERS board members that it was too late to include the increases in the FY 2013 budget.
However, Gov. John deJongh Jr. had promised to include rate increases in the FY 2014 budget, according to Ross.
Since that time, the governor had created a task force for addressing the $1.8 billion unfunded liability, which is predicted by actuarial studies to make GERS completely insolvent by 2023. Increases of 2 percent for employer contributions were adopted by the task force, but the governor failed to include any increases in the FY 2014 budget, and the Senate had failed to address it legislatively, Ross said.
"While others may fiddle while the GERS system goes down, the GERS board should not ignore its fiduciary duties. We have a responsibility to pass whatever measures that we can to save the system," Ross said.
The increases are an attempt to trim the unfunded liability, and even with the increase, the contribution rates still fall significantly below what actuarial studies recommend they be set at to stabilize the system. Given the system's ratio of one active employee to one retiree, an actuary had recommended that employers be contributing between 46 percent and 50 percent of an employees' salary, according to GERS administrator Austin Nibbs.
With the senate poised today to set the FY 2014 budget after much wrangling with the administration and after a number of unanticipated hurdles, no one is sure what the total cost to the government will be or whether it is supportable.
Nibbs said Thursday evening he did not know the dollar amount that the increases would inject into the GERS system, but he also said that a similar rate increase of 3 percentage points to employer contributions in 2008 had garnered about $10.8 million a year. The increase to the average GERS employee contributor would be about $500 per year, Nibbs said, but he did not have a figure on hand to represent how much enhanced employee contributions would inject into the system overall.
While acknowledging that the board had the statutory authority to increase rates without authorization from the V.I. Legislature or the governor, Nibbs also expressed heavy skepticism about governmental departments meeting the new obligations.
"The board has the authority by statute to do what it did. However, I am not sure the government has the funds to do that right now," Nibbs said.
Also on Thursday, GERS board members met with Gov. John deJongh Jr. to discuss a settlement agreement of $3 million in employer contributions that GERS claims the central government owes, which has held up payment of full benefits to 293 people who retired in 2012, according to Ross.
Government House spokesman Jean Greaux Jr. said the governor had learned Thursday afternoon, at the meeting about the settlement agreement, of the board's decision to raise employer and employee contribution percentages. The development, coming so late in the budget process, still had yet to be quantified by the governor, Greaux said.
"It furthers the economic challenges. It just worsens the financial condition of the government and underscores why we need to get focused on addressing some of the concerns of the financial solvability of the system," Greaux said.
Regarding the availability of the funds and the prospect of nonpayment by government agencies, Greaux said: "Obviously we have got to figure out what the total impact is, then figure out the what ifs."
- Contact Amanda Norris at 714-9104 or email firstname.lastname@example.org.