ST. CROIX — The board of the Government Employees’ Retirement System voted 4 to 1 during a special meeting held virtually tonight to wait nine months before implementing a 3% increase in the employer contribution the executive branch makes to the pension system.
Additionally, the board unanimously voted to tweak the System’s portfolio by moving about $50 million in earnings to safer bonds from riskier stocks.
Employer contribution:
Governor Albert Bryan Jr. requested the board to rescind its previously-approved resolution to increase employer contributions to 26.5% from 23.5% beginning January 1, 2025.
Rather than rescinding its resolution, the board voted to move the effective date to October 1, 2025.
Dwayne Callwood, GERS board chair, suggested the compromise to change the effective date. He said the delay would give the executive branch, or the plan sponsor, nine months of relief, providing an opportunity to work the increase into the fiscal year 2026 budget.
Nellon Bowry was one of the board members who agreed with Callwood.
“I’m definitely not prepared to rescind the increase,” Bowry said, adding he supports delaying implementation until October 1, 2025.
A letter from Governor Albert Bryan Jr. that was read into the record indicated that implementing the 3% increase in employer contributions would place an additional $14 million burden on the government, which the governor indicated is “unsustainable” under the existing financial circumstances. Bryan also noted the central government is 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. The governor suggested raising the employer contribution rate before Congress has made a determination would be premature.
While the VI government receives $10.50 per proof gallon of rum exported, Congress has historically extended the cover over rate to $13.25 per proof gallon. If the cover-over rate remains at $10.50, board members heard that the GERS is projected to have annual shortfalls between $20 million to $29 million over the next 30 years.
The rum cover over funding is tied to the Matching Fund Special Purpose Securitization Corporation, or special purpose vehicle, which has temporarily held off the System’s projected insolvency. Callwood, while discussing the need to increase employer contributions, clarified the SPV is not going to prevent GERS from insolvency, regardless of the rum cover-over rate.
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 $4 billion over 30 years.
While four board members agreed to delay implementation of the employer contribution rate increase by nine months, board member Ronald Russell had a different view.
Russell, the only board member who voted against the motion to delay implementation, called for the board to apply pressure on Bryan and Delegate to Congress Stacey Plaskett to reach out to President Joe Biden before he leaves office to see if the rum cover over extender could be passed in Congress, thereby increasing the cover-over rate to $13.25.
“I don’t think our delegate and the governor has aggressively pursued the increase,” Russell said.
Other board members who supported delaying implementation of the employer contribution rate increase were Andre Dorsey and Leona Smith. Vincent Liger was absent.
Investment portfolio:
The board unanimously voted to adjust the System’s portfolio.
Callwood said the recommendation from the System’s investment advisor, Meketa, was to move about $50 million in earnings to “less risky” bonds from stocks.
Shawn Bowen, of Meketa, discussed the benefits of moving the earnings.
“Our recommendation is to move 10% from equities and put 10% into bonds,” he said.
Bowen said equities, or stocks, earn more but are riskier. During the past two fiscal years, he said GERS had “really good returns,” noting 9% returns in FY 2023 and 24.3% returns in FY 2024. He said about $50 million in earnings would get moved into bonds.
“It’s looking longer term but it’s also kind of a tactical move to take advantage of the gains that you’ve had over the past two years,” Bowen said. “You’re still going to have 50% to 55% of the portfolio in equities. It’s just taking some of that risk off the table.”
GERS has 100% of its U.S. equity exposure in the Russell 3000 Index Fund, which is heavily weighted to large cap technology companies like Facebook, Apple, and Microsoft, according to Bowen. He said GERS does not have much exposure to the smaller part of the market, proposing to break out the earnings to invest in small caps found in the Russell 1000 and Russell 2000 Index Funds. He said GERS would continue to have $210 million in large cap investments within the Russell 3000 Index Fund.
