GRUFF Position Paper (August 2021): Government retirees should be aware that a movement is underway to reduce our pensions due to the impending insolvency of the Government Employees Retirement System (GERS). The problem stems from the government’s monumental failure for decades to pay adequate employer contributions to GERS. Today, faced with its own financial crisis, it seems the government has the audacity to suggest that retirees should bear the consequences of the government’s fiscal irresponsibility for decades.
The government will probably tell us that it has no choice but to reduce the accumulated pension benefits. But this is simply not true. Accordingly, Government Retirees United for Fairness Inc. (GRUFF) urges all government retirees to let our Senators and GERS officials know that we will not agree to a reduction in our hard-earned pension benefits.
To begin with, remember that just over a year ago, on May 13, 2020, the GERS Board of Directors sent a letter to the Senate in which it requested an immediate injection of $ 195 million. or, failing that, recommended a 42% reduction in all pension benefit payments. The inhumanity of this proposal was and is shocking, especially when about 77% of retirees receive a retirement benefit that is already below the minimum wage, and about 25% of those retirees are 80 years of age or older. Equally disturbing is the fact that this reduction was suggested in a vacuum, without any bridge to a real solution to GERS insolvency – just a proposal to slowly starve retirees of their pensions. OOf course, the injection of money was not made by the government.
In this context, it was recently reported that in the week of April 12, a seven-member legislative subcommittee, chaired by Senator Vialet, met with members of the GERS board to discuss the insolvency of GERS. Senator Vialet spoke of “sav[ing] the system. âHowever, it is telling that Senator Frett-Gregory said,â Solutions are not easy solutions. difficult decisions, but at the end of the day our goal is. . . to make sure we have some creditworthiness go into the future. These statements are inherently contradictory: either the solvency of the system is safeguarded in its entirety, or it is not.
It is therefore clear that when Senator Vialet and others speak of “saving the system”, they are not speaking of pension saving; They talk about save the system by reducing pensions. The references to “difficult decisions” and to an objective of ensuring “a certain solvency” are indicative of proposals for significant reductions in pensions on the horizon, perhaps along the lines of the GERS proposal of May 13, 2020. . It is totally unacceptable.
The first point to emphasize here is that GERS is not a representative or collective bargaining unit for government retirees or GERS pension plan members. Rather, the GERS is an instrument of government (3 VIC Â§ 715 (a)), with no capacity to bind government retirees to an agreement involving a modification of accrued pension benefits.
The second point to emphasize here is that any legislation aimed at implementing such a change in pensions would likely be deemed unconstitutional. GRUFF contends that it would violate the Constitution of the United States if the VI government attempted to resolve its own financial problems by eliminating a group of creditors (i.e. retirees) and seeking to break its contractual payment obligations. towards them (that is to say the obligation to finance our pensions). This is not permitted under the “contracts clause” of the United States Constitution, which was made applicable to the VI government in 1954 by section 3 of the revised Organic Act.
GERS pays more than $ 250 million in benefits per year. But the government has historically funded less than $ 100 million per year in employer contributions, or only about 40% of what GERS pays. Thus, even after taking employee contributions into account, the government massively under-finances GERS every year. As a result, GERS is expected to run out of cash in 2-3 years. Meanwhile, the government owes Wall Street bondholders $ 2.4 billion and pays – in full and on time – about $ 140 million a year in debt repayments to these Wall Street investors, or about one and a half times what it pays GERS each year. So: why aren’t bondholders being asked to pay their fair share and reduce their bond payments? The government does not appear to have attempted to include debt reduction for bondholders as a key element in restoring the creditworthiness of USVI and, in turn, GERS. GRUFF argues that this is unacceptable and unconstitutional.
If the government is serious about revitalizing the USVI, it must protect the incomes of its retirees, who buy goods and services and pay taxes in the territory – not impoverish (or further impoverish) these residents in favor of paying investors. of Wall Street who don’t buy. goods and services or pay taxes in USVI.
A comparison with Puerto Rico is instructive here. In 2017, Puerto Rico‘s pension systems were essentially bankrupt (like GERS). The Puerto Rico Electric Authority operated a fragile and dilapidated generation and transmission system and needed a major overhaul, without funding to do so (like WAPA). And Puerto Rico was working under a mountain of public bond debt (like USVI). While Puerto Rico’s restructuring is not complete, its current state is worth noting.
Puerto Rico has already canceled approximately $ 5.6 billion the âCOFINAâ bond debt backed by sales tax revenue. In addition, Puerto Rico offered approximately one 60% reduction in its annual fixed total bond debt payments (in USVI, assuming annual bond debt payments of $ 140 million, which would equate to a saving of about $ 84 million per year). Unlike these bond debt reductions, Puerto Rico is proposing to keep more than 96% of all accrued pension benefits, and around 74% of all retirees will not suffer any pension reduction.
Puerto Rico thus provides a vivid example of another way to restore the financial health of the USVI that is more efficient and fairer to the people of the USVI. As such, any proposed “solution” to the USVI’s financial problems that focuses primarily or only on cutting pensions, and not at all on reducing its public bond debt, is clearly unreasonable and unnecessary.
The options for retirees are simple and clear: Would we prefer (a) a restructuring process that will take care of the finances of the USVI as a whole, restore the territory’s financial solvency, and minimize pension cuts by including all creditors (including bondholders) in the financial solution, or (b) a process that seeks to resolve the USVI’s financial crisis largely through drastic cuts to the accrued pension benefits of its retirees? The choice for retirees should be crystal clear. And for the governor, legislature, and other officials elected to protect the people of the USVI, the choice should be equally clear: protect retirees and their pensions, not Wall Street investors.
In summary, GRUFF argues that retirees should not agree to be sidelined by the government and take responsibility for the government’s continued fiscal irresponsibility, and we will not accept a reduction in pensions under these circumstances. .
Government Retirees United for Equity Inc.