Senate starts talks regarding GERS reform


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ST. THOMAS - The Senate began to consider a series of proposed reforms to the government's pension system Tuesday, although it was just a first step in the process.

The Committee of the Whole will meet 10 a.m. Friday on St. Croix to continue the discussion.

While no bill is before the Senate yet, Gov. John deJongh Jr. submitted proposed legislation in March that included many of the recommendations made by the Pension Reform Task Force.

The task force was formed by executive order in 2012 - based on a recommendation by a V.I. Inspector General's audit report - and last year the group returned a document full of measures to prevent the retirement system's collapse.

The territory's government retirement system has an unfunded liability of $1.8 billion and is projected to become insolvent in about nine years unless major changes are made.

After getting a late start Tuesday, senators spent the first few hours grilling Government Employees' Retirement System Administrator Austin Nibbs and board Chairman Vincent Liger about their position on the governor's proposed reforms.

The afternoon and evening hours were spent hearing from retirees and other groups concerned about the future of the system and the impact the governor's proposal may have on the territory.

"For decades, GERS' administrators have been warning the public of the possible bankruptcy of the system. For the most part, these warnings have fallen on deaf ears. Elected and appointed leaders have known about the retirement system's unfunded liability, yet neither our elected leaders nor the GERS board have taken the necessary steps to place the system on a sound financial footing," said Leonard Smollett, a representative of Advocates for the Preservation of the Retirement System.

Bond investments

He was critical of several provisions included in the governor's proposal and the task force recommendations, including one measure to allow the pension system to invest up to 30 percent of its portfolio in bonds rated below investment grade.

GERS legal counsel Cathy Smith told senators the provision is necessary because sometimes an investment's rating may drop, and to comply with the V.I. Code, the system must get rid of the asset even if it means taking a loss.

Smith said it makes more sense sometimes to hold on to the investment and wait for its rating to improve, thereby preventing the system from taking a loss.

One of the task force's recommendations is to increase personal loan maximums from $50,000 to $75,000 and increase commercial loans from $250,000 to $350,000.

Smollett said GERS should not be in the business of commercial loans, as it is too risky.

"I'm not in favor of commercial loans to people who should be able to go to a bank to borrow for a business," he said.

Carambola

The retirement system's plans to build a hotel on St. Thomas - which is stalled after the Senate denied a zoning change for the GERS-owned property Monday - and the default of the Carambola loan also came under fire at Tuesday's hearing.

GERS had loaned Carambola Resort and Spa $16 million, but the resort defaulted and now the hotel belongs to the retirement system. Since the system took over the property last year, the board has approved investing more money into the property, bringing the total investment up to almost $20 million.

Mary Davis, a member of Advocates for the Preservation of the Retirement System, said she is not in favor of investments GERS has to "feed" or continue to pour money into.

"To loan money and be stuck with the collateral, I don't think that's something the GERS should be about. We don't have enough money to do that," Davis said.

Nibbs said the board has decided to sell Carambola and he is confident it will sell, and the system will be made whole, perhaps even profiting from the deal.

Retirees speak out

A group called Government Retirees United for Fairness, many wearing neon green shirts, filled the Senate gallery Tuesday.

The group has three major concerns about the proposed reforms.

One of the task force recommendations is to cut retirees' current benefits by 10 percent.

The retirees who testified Tuesday spoke about the hardship this would cause those living on an already small fixed income in a community with a skyrocketing cost of living.

The task force made the recommendation based on a legal opinion from V.I. Attorney General Vincent Frazer that said the government could legally cut benefits to retirees if it was legislated.

Not only were the retirees opposed to the idea, but senators and GERS officials were as well.

"An AG opinion is just that, his opinion, and it can and will be challenged," Sen. Clifford Graham said. "Because it is wrong to change once someone is on a fixed income."

Contribution cap

Retirees also oppose a task force recommendation to suspend the annual cost of living increases for a five-year period. Senators seemed sympathetic to the retirees on that issue as well.

The third recommendation opposed by the retirees' group is a measure to increase the salary cap from $65,000 to the Social Security salary cap, which is adjusted each year but is currently about $117,000.

Currently, government workers making more than $65,000 a year only pay their employee contribution of 8 percent on the first $65,000. When the worker retires, the annuity is calculated based on that $65,000, regardless of the employee's salary level at time of retirement.

The task force recommendation is to make them pay contributions on their whole salary - up to the salary cap set by the Social Security Administration.

Nibbs said the maximum retirement annuity would be increased slightly, to $85,000, for those who make a higher salary and have contributed.

In calculating the annuity for these government employees, it would be split. They would get one annuity based on the years they worked and contributed at the $65,000 amount, and a separate annuity would be calculated just for the years they paid at the new cap rate, but the annuity would not exceed an amount based on $85,000.

Nibbs said the change will actually give the system more money, because employee and employer contributions will be collected on an employee's full salary.

Other measures

Other measures included in the governor's proposed reforms are:

- Asking employers and employees to contribute a larger amount toward pension benefits. The bill raises the employee contribution 1 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.

- 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.

- Changing the formula used to calculate benefits.

- Contact reporter Aldeth Lewin at 714-9111 or email alewin@dailynews.vi.

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