ST. CROIX — A 3% increase in employer contributions the Virgin Islands government pays to the Government Employees’ Retirement System effective October 1 is projected to cost about $13 million, but the necessary funding is not included in the fiscal year 2026 executive budget submitted to the Legislature about three weeks ago, according to Government House.
GERS Administrator Angel Dawson Jr. notified the three branches of government and its instrumentalities in a memo on June 4, after the governor transmitted his executive budget.
It remains unclear whether the government can afford the increase at this time.
“Consideration will be given during the budget process,” Senator Novelle Francis Jr., Committee on Budget, Appropriations and Finance chair, wrote in a text message, noting that lawmakers have other obligations such as the minimum wage increase for government employees and the pending increase to health insurance premiums.
Although the governor has since vetoed the minimum wage increase, legislators may seek an override.
Senate President Milton Potter said senators will have to look at the overall budget to decide whether funding is available to make good on the government’s obligation with GERS while considering competing priorities.
“Those are some of the big decisions that the body will have to make,” he said.
GERS approved a resolution to increase employer contributions to 26.5% from 23.5% beginning January 1, but Governor Albert Bryan Jr. requested the board rescind the increase.
The GERS board compromised and voted during a special meeting held virtually on November 18, 2024 to move the effective date to October 1 to give the executive branch nine months of relief and time to work the increase into the FY 2026 budget.
The governor, in a letter that was read into the record during the GERS board meeting last November, indicated that implementing the 3% increase in employer contributions would place a burden on the government that was “unsustainable” at the time.
Bryan noted in his letter to the GERS board that the central government was still waiting for Congress to approve a rum cover-over tax extender that is expected to result in a $90 million reimbursement to the territory. He suggested at the time that it would be premature to raise the employer contribution rate before Congress decides.
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The VI government receives $10.50 per proof gallon of rum imported into the U.S. mainland. Congress, however, has historically extended the cover-over rate to $13.25. The temporary increase expired in December 2021. Legislation introduced in February by Representative Ron Estes (R-KS-4) and co-led by Delegate to Congress Stacey Plaskett would increase the cover-over rate to $13.25 retroactively from 2022 and extend through 2032.
However, Plaskett, in a statement issued May 22 after the House of Representatives passed the Republican reconciliation package (H.R. 1), indicated that the bill does not provide the increased rum cover-over rate. She noted the extension for the Virgin Islands and Puerto Rico was not included in the bill despite her success in securing Estes as a Republican lead for the cover-over legislation in addition to support from 24 of her colleagues, including eight Democrats and 16 Republicans.
The rum cover-over funding is tied to the Matching Fund Special Purpose Securitization Corporation, or special purpose vehicle. Legislation creating the SPV, Bill No. 34-0188 (Act No. 8540) was enacted on February 8, 2022 to reduce a portion of the government’s debt and bring solvency to the pension system by providing between $82 million to $158 million in annual contributions, totaling about $3.8 billion over 30 years.
Dwane Callwood, GERS board chair, discussed the need to increase the employer contributions during last November’s meeting. He clarified that the SPV alone would not prevent GERS from insolvency, regardless of the rum cover-over rate.
Dawson pointed out the System is permitted in Title 3, Chapter 27, Section 718 of the Virgin Islands Code to increase the employer contribution by no more than 3% every five years. He said the increase is necessary at this time because more than half of the $3.8 billion tied to the SPV is scheduled for the second half of the 30-year period.
“It’s back-loaded,” Dawson said. “That being the case, mathematically, we will be facing a structural insolvency, temporary insolvency, if nothing is done for two to three years halfway through the 30-year funding note period. So, we’re doing everything that we can. And that’s just one measure to ensure that that insolvency, temporary as it may be, does not occur.”
