Tier II government employees saw a small increase in their contributions to the Government Employees Retirement System (GERS) starting February 5. The 1% increase follows a similar measure for Tier I employees that took effect January 1. These increases are part of a plan to boost funding for the GERS, which was poised to collapse within a decade without major changes.

Under the new plan, Tier I and Tier II employees’ contributions will increase 1% per year for the next three years, ultimately arriving at 11% for Tier I employees and 11.5% for Tier II employees. Meanwhile, the government’s contribution will be increased just once, from 17.5% to 20.5% — a rate that will be in effect for five years.

According to an August study, GERS has an unfunded liability of $1.84 billion, due to a growing number of pensioners and a decreasing number of current employees paying into the system. This situation would ultimately lead to insolvency by 2025 without legislative action. Contributing to the dire situation has been the sluggish economy, as well as the “Economic Stability Act of 2011”, which encouraged government employees to take early retirement and reduce the Government of the Virgin Islands’ payroll. This had the added effect of increasing the monthly benefits paid out from just under $8.4 million in 2011 to nearly $9.3 million in 2013.

Due to some challenges within the central government, the Virgin Islands Personnel Division was unable to adjust the contribution rate for some employees after the first of the year, but assured workers that the adjustment would be made by February 5. Eventually, GERS will need to collect funds from employees whose contributions were not adjusted on time, but the plan for doing so remains to be implemented.

Additionally, increased contributions were also approved for Tier II hazardous duty employees, as well as senators and judges. Hazardous duty employees will eventually contribute 13.625% to GERS, while senators and judges will increase their contributions to 14%.

With these new increases in employee contributions, GERS is believed to be safely solvent through 2032, although with the ratio of active employees to retirees currently at 1 to 1.2, there is still much concern that the system will continue to experience difficulties striking a sufficiently stable balance between the money coming in and the money going out.

The recent action of the Legislature of the Virgin Islands certainly helps, but whether it will be enough — and whether the benefits of the legislation will last as long as expected — remains to be seen.

BoltNagi is a widely respected and well-established government relations firm serving individuals, businesses and organizations throughout the U.S. Virgin Islands.