THURSDAY, MARCH 9, 2017 86 A Pulitzer Prize-Winning Newspaper ST. CROIX ST. JOHN ST. THOMAS TORTOLA A 36-page Daily News Special Investigative Report By Senior/Investigative Reporter Joy Blackburn GERS at Risk Who’s to Blame? The V.I. Government Employees Retirement System $4,070,000,000 unfunded liability Inside Part 1: What’s the problem? | Page 3 Part 2: who’s to blame? | Page 11 Part 3: how will gers insolvency impact you? | Page 25 Part 4: can gers be saved?| Page 29 Timeline of trouble| Page 32 How we did this report| Page 36 CELEBRATING THE PEOPLE, CULTURES AND HISTORY OF THE VIRGIN ISLANDS SINCE 1930 2 The Virgin Islands Daily News Thursday, March 9, 2017 GERS at Risk Who’s to Blame By Daily News Senior/Investigative Reporter JOY BLACKBURN Words to Know ACCOUNTS RECEIVABLE asset over time. money will come from. The V.I. the required payments on a loan or 2005. In general, Tier 2 employees — Money an entity has a right to ANNUITY — A financial government has used its anticipated bond. get lower pensions and have to collect for goods or services it has product that provides guaranteed revenue from gross receipts taxes FUNDED RATIO — A pension make higher contributions than Tier already provided. periodic benefit payments, typically and rum excise taxes as security for plan’s level of assets in proportion 1 employees. ACTUARY — A professional for a retiree’s lifetime. bonds. to its level of liability, or obligations PFA — The V.I. Public Finance who measures and manages ASSETS — Something owned BOND RATING — A “grade” to pay. Authority is a public corporation risk. Pension actuaries assess that has economic value, especially that a credit rating company FLOATING BONDS — A term and autonomous agency of the V.I. the financial impact of future items that can be converted to assigns to a specific set of bonds used when bonds are being sold. government that raises capital for events (retirement, termination, cash. For example: cash, stocks or to a bond seller, based on the GOVERNMENT EMPLOYEES’ government projects and issues disability and death) and future and bonds, commercial inventory, level of risk to buyers. Rating RETIREMENT SYSTEM — The bonds for the government. economic conditions (interest office equipment, real estate and companies evaluate the likelihood method of providing pensions PLAN SPONSOR — The entity rates, investment returns and vehicles are assets. that the seller will not be able for V.I. government employees. that sets up a pension system. The salary increases) to measure, BENEFIT MULTIPLIER — to pay (default). Generally, the Participation is mandatory, and the V.I. government is the plan sponsor among other things, the amount of the factor in a defined benefit riskier the bond, the lower the government takes the employees’ of GERS. money a pension needs to pay its plan that helps determine the credit rating. Each of the three contributions out of their paychecks POINT IN TIME SNAPSHOT — obligations. size of a retiree’s annuity. In the major rating services — Moody’s automatically. A record of what a particular place ACTUARIALLY DETERMINED case of GERS, for regular Tier 1 Investor Service, Fitch Ratings, HEDGE FUNDS — Pooled or situation is like at a particular CONTRIBUTION — The pension employees, the multiplier is 2.5; and Standard & Poor’s —has its funds that make a wide range of time. actuary’s assessment of how much for regular Tier 2 employees, the own grading scales. The companies riskier investments hoping they RATE OF RETURN — The money should be put into the multiplier is 1.75. make their research and ratings will perform better than the market value of earnings from investments, retirement system in a given time BOND — A debt created to available to potential investors. average. They are called hedge based on interest, dividends and period to pay for current and future raise capital. Bonds are basically BOTTOM LINE —The ultimate funds because their successful capital gain and loss adjustments. It pensions. promissory notes for a specific financial condition of a government investments make enough profit to is expressed as a percentage. ALTERNATIVE INVESTMENTS amount of cash. In order to get that or company after factoring in provide protection — a hedge — SPECIAL INTEREST — Investments outside the cash, the bond seller (for example assets, income, debts, expenses and against market ups and downs. LEGISLATION — A law that traditional and fixed-income capital the V.I. government or the V.I. other liabilities. HYBRID PLAN — A pension benefits only one person or a small markets. Alternative investments Water and Power Authority) agrees CASH BALANCE PLAN — A plan that combines elements of group, often at the expense of the have potential for higher returns to pay back the bond buyer the pension plan that requires the defined benefit plans and defined rest of the population. than the public markets, but they same amount, plus a set number employer to credit the employee’s contribution plans. SUBSIDIARY — A company also carry higher risk and can result of interest payments over a pre- account with a set percentage of INSOLVENT — Inability to that is owned by another company. in losses for the investor. determined period. At the end of the employee’s compensation, plus pay money owed. GERS will be The owner is called a parent AMORTIZE — Pay off a debt that period, the bond matures and interest, annually. Participants get insolvent when it has sold off all its company or holding company, and gradually by making periodic the original investment is returned a defined rate of return that is not assets and has nothing left except it owns at least 50 percent of the payments of principal and interest. to the buyer. Bond buyers need to affected by the ups and downs in incoming contributions to use to subsidiary. Home mortgages typically are feel secure that the seller will be the value of the plan’s investments. pay pensions. As more employees UNFUNDED LIABILITY — The amortized over 30 years. In finance, able to pay them back, so the seller It is a variation of the defined retire, and less contribution money difference between the total amount amortize also can mean gradually has to show where the payback benefit plan. The annuity is based comes in, the pension amounts will owed to current and future retirees writing off the cost or value of an on the cash balance of the plan. decrease. and the actual amount of money on COST OF LIVING LIABILITY — A legally binding hand to make those payments. ADJUSTMENT — Increases to debt payable to another entity. VESTED — Eligible to receive pension amounts based on the GERS’ main liability is the benefits after retirement. A V.I. cost of living. The GERS board pensions it is obligated to pay. government employee must work can set a cost of living adjustment NASRA — National Association 10 years to become vested in (COLA) amount based on the of State Retirement Administrators. GERS. consumer price index, economic PENSION OBLIGATION VIATICAL — A form of studies and other evaluations the BONDS — Bonds that a alternative investment in which board considers relevant. The government sells to raise money to the investor buys the life insurance board suspended retirees’ COLA pay its debt to its retirement system. policy of an old or terminally increases in 2013, except for The goal is to reduce the retirement ill person for a percentage of disabled pensioners, and has not system’s unfunded liability. When the policy’s payout at death. The reinstated them. the retirement system gets the investor pays the premiums and DEBT SERVICE — The cash money from the bond sale, it receives all the insurance money needed to repay interest and invests that money to potentially when the beneficiary dies. It is principal on a debt during a build up the pension fund. These risky because insurance companies particular time period. bonds are considered risky because may find a reason not to pay DEFINED BENEFIT PLAN to work properly, the invested bond and because the person may live — A pension plan in which sale money has to earn at a higher longer than expected, costing the the employer pays retirees a set rate than the interest rate on the investor more in premiums than amount until they die. GERS is a bonds. The V.I. government has the insurance is worth. GERS defined benefit plan. been authorized since 2006 to issue is invested in a viatical, but has DEFINED CONTRIBUTION $600 million in pension obligation suspended new investments in that PLAN — A pension plan in which bonds to help GERS, but it has category. the contribution — by employer never done so. — Sources: GERS; V.I. Code; or employee or both — is a set TIER 1 — Employees who Pew Charitable Trusts; U.S. amount, which the retirement started working for the V.I. Department of Labor; Government plan invests. Pension amounts government before Oct. 1, 2005. Finance Officers Association; vary depending on the investment TIER 2 — Employees who Actuarial Evaluation and Review of earnings. started working for the V.I. GERS, 2015; Investopedia; AARP, DEFAULT — Failure to make government on or after Oct. 1, Merriam-Webster Dictionary. Thursday, March 9, 2017 The Virgin Islands Daily News 3 GERS at Risk Who’s to Blame? By Daily News Senior/Investigative Reporter JOY BLACKBURN — $4,070,000,000.00 unfunded liability — What’s The Problem? • GERS pays out more than twice as much as it gets from contributions. • V.I. government officials illegally withhold money from GERS. • Politics play with retirees’ futures. Inside Part 1 The Truth About GERS and What’s Gone Wrong | Pages 4-7 Numbers Don’t Lie | Page 6 Contributions to GERS | Page 6 How Does GERS Compare Nationwide | Page 6 How to Spot a Pension System at Risk | Page 8 “ Governor and Lt.