The V.I. Government Employees’ Retirement System is continuing to teeter on the brink of insolvency, which could result in a selloff of assets and a massive reduction in benefits within the next two years — or sooner, given the effects of the pandemic.
The board voted Thursday not to sell off assets like Havensight Mall in the hope that the government can figure out a way to come up with enough cash to stave off insolvency.
But board chairman Nellon Bowry cautioned that any sale of GERS-owned land and properties should happen while the board still has the power to oversee it.
“In an insolvency, sale of assets is out of your control. That’s almost the definition of insolvency, you have to sell your assets. Ain’t no way you can have assets and tell the retirees you can’t pay them their benefits,” Bowry said. “The idea was, if we’re going to have to sell the assets anyway in the event of insolvency, that the time to do the sale would not be when we’re flat broke. When you run out of money and you’re flat broke and you have to sell, then in comes a yard sale, you have to take what you get, you don’t really have any bargaining power. So, it makes more sense, if we have to sell, to sell it under conditions that we can control as opposed to part of a bankruptcy sale.”
Board member Ronald Russell said he has been thinking about possible funding solutions to bring to the Legislature, including diverting 10-15% of all tax revenues to GERS, or floating an $800 million bond.
The pension fund’s fixed income portfolio also had a slightly negative return on investment for the month of August, and GERS Investment Analyst Glenville Henderson explained the stagnation, and reminded board members that the approximately $700,000 loss in value is unrealized unless they sell the investments.
“Due the risk of rising inflation and the current projection of the economics with the Fed still buying, still generating liquidity within the market, buying $120 billion worth of bonds monthly, there’s just not that much yield as it relates to fixed income right now,” Henderson said.
GERS also no longer holds equity positions that have historically shown better returns, he added.
“Given our current portfolio makeup allocations, we’re looking at roughly a 3.9% year-over-year average return on our portfolio going forward, if everything stays true to form as it is right now,” Henderson said. “Over the inception of the fund we’ve averaged like 8.6%.”
Russell asked how GERS can return to that kind of percentage in the current financial climate.
“Given our liquidity issues, given insolvency looming, I really can’t see us getting — unless there’s some drastic change, some drastic infusion of capital that we could actually reinvest in some of the other traditional asset classes that we’ve done in the past, which includes equities and the like — I really can’t see us squeezing any more juice out of the markets given our current allocation,” Henderson said.
Russell asked Henderson to “give us some numbers” to show the Legislature, which would enable GERS to avoid insolvency.
Henderson said he’d have to discuss it with the investment consultant “but I would assume that with an $800 million infusion, we would be able to kind of invest more status quo as we did in the past. So, we should be able to squeeze more juice out, kind of maybe get more in line where we were before, to where we are now.”
“I don’t think we need to cut any corners with the Legislature, we tell them what we need. We need a pension bond obligation for infusion of cash,” Russell said.
GERS has said in court documents that the government owes $1.6 billion in unpaid “actuarially determined employer contributions,” while the government has argued the amount is far less.
Bowry told board members he recently attended a subcommittee of the Legislature’s Finance Committee dedicated to GERS restructuring, insolvency and economic development.
He was “impressed by the high turnout and level of senate engagement — there was at least 10 senators there. There was a lengthy discussion and a lot of ideas thrown out on the table,” Bowry said.
But he expressed concerns about whether senators are adequately planning for the system’s survival.
“My takeaway is that there is a clear interest and a renewed urgency in addressing the pending insolvency, and it seems to me that the approach being developed is an approach that seeks to defer insolvency as opposed to sustainably financing the system,” Bowry said.
GERS staff “have continued to impress on the Legislature, regardless of which committee, the preferred approach and the only lasting approach is sustainability, or a comprehensive funding approach. However, we understand that’s a big dollar number. The smaller number funds the approach that says, ‘Let’s see how much it will take to defer insolvency one more year,’ ” Bowry said. “So, we will continue to press on the need for a comprehensive approach, but of course, to the extent that any funding assistance will be preferable over nothing at this point.”