ST. THOMAS – The 36th Legislature voted to pass a measure stripping the Government Employees’ Retirement System of its ability to unilaterally increase employer contributions, in addition to overturning the GERS board’s decision to increase the contribution rate by 3% effective October 1.
The Senate voted to amend Chapters 27 and 28 of Title 3 of the Virgin Islands code to state that the GERS board may not increase employer or employee contribution amounts to the System without obtaining legislative approval. If signed into law by the governor, these amendments would remove the GERS board’s current authority to increase the contribution rate, albeit by no more than 3% every five years.
The bill also sets the employer contribution rate for fiscal year 2026 at the current rate of 23.5%, nullifying the GERS board’s decision to increase employer contributions to 26.5% effective October 1.
GERS Board Chair Dwane Callwood said he was disappointed by the Legislature's vote, but that lawmakers had acted fully within their authority.
“The System has an unfunded liability north of $3 billion, so anything that adversely affects cash inflows into the System is going to have a negative, you know, impact on the System,” Callwood said.
The GERS board initially set an effective date of January 1, 2025, but postponed it after officials expressed concern over the government’s ability to afford the increase amidst competing priorities. In a letter to the GERS board last November, Governor Albert Bryan Jr. warned the increase would put an “unsustainable” burden on the government and suggested that it would be premature to raise the employer contribution rate before Congress decided on the rum cover over tax extender.
READ MORE: GERS to increase employer contribution by 3% on October 1; funding not in FY 2026 executive budget
This decision came in late June, when Congress voted to permanently increase the rum cover over rate to $13.25 from $10.25 per proof gallon. Rum cover over refers to federal excise taxes collected on every proof gallon of rum produced in the Virgin Islands and sold on the U.S. mainland. Set at $10.50 per proof gallon, Congress has historically extended the cover over rate to $13.25, but this temporary increase expired in January 2022.While it was initially thought that this permanent increase would award retroactive payment to make up for the lower rate since the 2022 expiration, the language of the provision does not cover that gap.
The solvency of the pension system is tied to rum cover over revenues, as those funds back the Matching Fund Special Purpose Securitization Corporation, or special purpose vehicle, created in 2022 to direct between $82 million and $158 million annually to GERS. While the program is expected to provide about $3.8 billion over 30 years, GERS officials have cautioned that because much of the money is back-loaded, additional measures like higher employer contributions are still needed to prevent insolvency.
“The crux of it is that the SPV, when it was created, there was a schedule of payments to be made each year for 30 years. The amount of the payments annually is not consistent from year one to year 30,” Callwood explained, adding that the System was about to see a dip in those annual payments. “The money coming in would be less than money that we're paying out over the next 10 to 12 years.”
This cash inflow issue is compounded by the recent rum cover over agreement not allowing retroactive payments, leaving GERS with a shortfall of $90 million that Callwood said the System will have to write off.
“We have a shortfall of $90 million in rum cover over revenue payments. We have rum consumption/rum sales decreasing or going down across the United States. And now we have a rollback in the employer contribution from 26.5% back to 23.5%,” Callwood said.
All these combined put GERS in a grim position, leaving the System with more questions than answers when it comes to financial stabilization.
“As a board, as a System, we are going to do our best with the tools that are available to us by law,” Callwood said.
