The V.I. Government Employees Retirement System board is planning a two-and-a-half-day retreat at its St. Thomas office where Administrator Austin Nibbs said members will see the latest modeling of possible financial outcomes for the government’s pension plan. The Board also plans to discuss alternative investments and the possibility of reinstating a loan program to raise revenue at the retreat, which kicks off today and ends Wednesday.
“The first day’s going to be dedicated just to the investments and the actuarial assumptions. It’s going to be a long day, and a very interesting day,” Nibbs said during a Friday meeting.
At the retreat, which is not open to the public, accountants from New York actuary Segal Consulting will present the board with their latest calculations.
“I know that Segal planned to do some modeling which they had done about three or four years ago for us, and they plan to do that, they plan to have at least about three or four of them coming down, and they’re going to do modeling to show different assumptions and what the results would be if we did this, and did that, and all of that,” Nibbs said.
For years, GERS has been teetering on the brink of catastrophe, and Segal Consulting had projected the retirement system “will be insolvent by October 2024 or sooner.” The GERS board warned that if the estimated $1.6 billion unfunded liability is not addressed, retirees could experience up to a 71% cut in benefits.
In January, the Legislature passed Bill No. 34,0188, which seeks to address the pending insolvency of the retirement system by refinancing hundreds of millions of dollars of current V.I. government debt at lower interest rates and dedicating billions of dollars in rum cover-over receipts over the next 30 years to the repayment of the debt with any excess funds and savings going to GERS.
Gov. Albert Bryan Jr. at an April press conference announced that the first of 30 years’ worth of installment payments to GERS had been made in the amount of $89.2 million.
The territory’s 9,000 government retirees “no longer have to worry about cuts to their retirement,” Bryan said at the time.
By the end of 2022, the system should be infused with a collective total of $250 million, and Bryan said the following year will infuse $157 million, and each year after until the obligation is completed in 30 years’ time. Overall, the arrangement is expected to contribute $3.8 billion to the retirement system in the Virgin Islands.
Nibbs said that at the board’s retreat, there will also be a presentation “incorporating the alternative investments.”
The Alternative Investment Program was established in 2005 with the intent of increasing income by allowing GERS to enter into riskier investments with higher rates of return, according to a 2016 report by the V.I. Inspector General’s Office.
Further, it noted that alternative investments made with pension funds by GERS were risky, unmonitored and illegal, and GERS repeatedly ignored warning signs that investments were in trouble, and continued pouring money into ventures despite numerous red flags.
GERS said it did due diligence on all investments and agreements, but the Inspector General’s report said GERS did not properly vet several investments, in particular a loan provided to the owner of Carambola resort.
Rather than dial back on its initial $15 million loan, GERS spent an additional $12 million on the property and eventually took over the property when the loan went into default, according to the report.
GERS purchased the property for $6 million and sold Carambola in July 2019 for $10.1 million, and received $17.6 million in insurance proceeds due to the damages caused by the 2017 hurricanes, according to information from GERS.
Nibbs told board members Friday that he considered holding the retreat at Carambola, but rental prices have skyrocketed since the days of GERS ownership.
“We did look at Carambola, which would have been ideal. However it’s too expensive, compared to what we paid. Nibbs said while he found a place on St. Thomas, it did not “have, to me, the adequate technology for us that we need, so we settled on coming in and using our conference room here on St. Thomas.”
Nibbs told board members Friday that the second day of the retreat, “is going to be the auditor and then the ethics training, ethics in governance, by one of our outside firms that we use for our investments. Also, we’re going to have a legal portion.”
The third day will be dedicated to staff presentations on the system’s information technology needs, and “we’re going to do a presentation, our recommendation in regards to the reinstatement of the loan program.”
The personal loan program was suspended in 2015 over concerns about GERS’ financial state. Gov. Kenneth Mapp signed legislation in 2016 requiring that GERS provide loans of up to $10,000 to any member of the system who contributed for at least two years, but the board voted to keep the program on hiatus.
The 2016 Inspector General’s report noted that while GERS had stopped giving loans to its members and said it had suspended the Alternative Investment Program, “GERS continues to provide loans to non-members,” including an $11 million loan to a failed St. Thomas supermarket, at least $480,850 of which was “diverted for unauthorized purposes.”
GERS continues to manage personal loans granted before the program was suspended, and Nibbs reported to the board Friday that as of May 31, there are 1,547 units left, including 78 mortgages. The total amount outstanding in the portfolio is $17 million. He said 526 loans are scheduled to mature at the end of this year, and the number of loans maturing at the end of 2023 and 2024 is under review.
Board members also met in executive session Friday, out of view of the public. When they returned to open session, member Pedro Williams reported that the board discussed ongoing cases with the system, including “the Levron Sarauw matter as well as the Mary Duggan matter.”
He did not elaborate on the nature of those discussions, and board member Ronald Russell added another element of the executive session discussion to the public record.
The record “should also reflect that we were discussing alternative investments and we have agreed to assign that to the board retreat because that’s an issue that we have not resolved and we should discuss it at the board retreat. Also, that should be in the record too,” Russell said.
Board members received a draft agenda for the upcoming retreat, but Nibbs said in response to questions from The Daily News that it will not be made public until the agenda is finalized.