Gov't Emps. Ret. Sys. of the V.I. v. Gov't of the V.I.
| Citation | 995 F.3d 66 |
| Decision Date | 09 April 2021 |
| Docket Number | Nos. 20-1749,20-1766,s. 20-1749 |
| Parties | GOVERNMENT EMPLOYEES RETIREMENT SYSTEM OF the VIRGIN ISLANDS, Appellant in No. 20-1766 v. The GOVERNMENT OF the VIRGIN ISLANDS; Commissioner of Finance of the Government of the Virgin Islands, Appellants in No. 20-1749 |
| Court | United States Courts of Appeals. United States Court of Appeals (3rd Circuit) |
Robert D. Klausner [ARGUED], Klausner, Kaufman, Jensen & Levinson, 7080 N. W. 4th Street, Plantation, FL 33317 Cathy M. Smith, Government Employees Retirement System 3438 Kronprindsens Gade, GERS Complex, Suite 1, St. Thomas, VI 00802, Counsel for Government Employees Retirement System
Brigid F. Cech Samole, Katherine M. Clemente, Elliot H. Scherker, [ARGUED], Greenberg Traurig, LLP 333 Southeast 2nd Avenue, Suite 4400, Miami, FL 33131, Angel Taveras, Womble Bond Dickinson, LLP Independence Wharf, 470 Atlantic Avenue, Suite 600, Boston MA 02110, Carol L. Thomas-Jacobs, Office of Attorney General of Virgin Islands, Department of Justice, 34-38 Kronprindsens Gade, GERS Complex, 2nd Floor, St. Thomas, VI 00802, Counsel for Government of the Virgin Islands and Commissioner of Finance of Government of the Virgin Islands
Ian H. Gershengorn, Jenner & Block LLP, 1099 New York Avenue, N.W., Suite 900, Washington DC 20001, Counsel for Amicus Appellees
Before: SMITH, Chief Judge, CHAGARES and MATEY, Circuit Judges
1. Creation of GERS in 1959 ...72
2. The 1968 amendments ...72
3. The 2005 amendments ...73
1. The 1981 complaint ...74
2. The 1984 consent judgment ...74
3. The 1994 amendment to the consent judgment ...74
4. The tangential 2001 action ...75
5. The 2016 enforcement proceedings ...75
1. The historical under-contributions fall within the consent judgment ...78
2. The GVI's historical under-contributions were properly before the District Court ...80
3. Direct contributions to GERS and the true-up process do not offset the award ...84
4. The expert reliably calculated the $18.9 million in principal ...85
1. The statutes are not intended only for willful misconduct ...86
2. The District Court erred by applying the statutes retroactively ...87
3. GERS's action was timely ...90
The promise of a pension is critical to the retirement security of many of us who work. And retirement security "is often compared to a three-legged stool supported by Social Security, employer-provided pension funds, and private savings."1 When an employer's promise of deferred compensation goes unfulfilled, the expectations of many-a-pensioner are upended. That threat looms for a substantial share of the citizenry of the U.S. Virgin Islands because of the perilous financial condition of its Government Employees Retirement System ("GERS").
When a public-pension system reaches the point where it is actuarially unsound, the blame rarely lies with a single person, political party, or institution. Economic recession, unfunded legislative mandates, poor investment strategies—all can conspire to destabilize a pension system. And each bears responsibility for GERS's untenable financial state.
But GERS has also faced a unique challenge. Virgin Islands law seemingly fails to obligate anyone to fund GERS when employee-compensation-based contributions and associated investment returns fall short of the assets required, based on actuarial assessments, to meet future pension commitments. For decades, GERS has experienced annual deficits between its assets and projected liabilities to system participants. Its aggregate shortfall now stands at about three billion dollars—leaving the system on the brink of insolvency.
Yet the Government of the Virgin Islands ("GVI") is itself fiscally challenged and has at times failed to remit to GERS all the employer contributions it is statutorily mandated to make. GERS has repeatedly sued the GVI for these contributions—first in 1981, resulting in a consent judgment, and most recently in 2016, when GERS sought to enforce that judgment in court. GERS claimed that, as far back as 1991, the GVI had contributed tens of millions of dollars less than required by the statutory percentages of employee compensation. GERS also sought to compel the GVI to step into the billion-dollar breach, arguing that—independent of these fixed-percentage contributions—the GVI must fully fund GERS to the point of actuarial soundness.
With an appointed expert's help, the District Court awarded GERS an amount calculated to reflect the GVI's historical percentage-based under-contributions. We will affirm that award of principal. But the Court erred when it enhanced the award by applying late-arriving interest and penalty statutes retroactively. We will vacate the portion of the judgment to GERS that includes those enhancements and remand with instructions for the District Court to reduce its award accordingly. Finally, the Court determined that the consent judgment does not require the GVI to fund GERS for the delta between its assets and liabilities. We, too, find no anchor for this sweeping duty GERS seeks to impose on the GVI, so we will affirm the District Court's ruling in GERS's cross-appeal. Even were we to cut that obligation on a rationale made of whole cloth, the system would remain insolvent. The citizens of the United States Virgin Islands—population 106,4052 —simply cannot pay the necessary billions. The cure for GERS's chronic underfunding is not judicial but legislative—if not at the territorial level, then perhaps on Capitol Hill.
We need not trace the long and winding road across laws, history, politics, and litigation that has brought the Virgin Islands’ public-pension system to where it is today. Instead, we hew to the legal framework relevant to the questions presented and to the procedural narrative by which this case and the parties’ arguments have wended their way to us.
1. Creation of GERS in 1959. By passing Act 479, effective October 1, 1959, the unicameral legislature of the Virgin Islands ("the Legislature") created GERS as the retirement system for GVI employees. GERS was "established as a trust, separate and distinct from all other entities"; endowed with "the powers and privileges of a corporation"; and required to transact all its business and hold all its assets in its own name. Act of June 24, 1959, No. 479, §§ 701(c), 715(a), 1959 V.I. Sess. Laws 92, 94, 104. The Legislature vested responsibility for operating GERS in a board of trustees, which has the power to authorize the purchase or sale of investments, make contracts, and "sue and be sued" under the GERS name. Id. § 715(b)(3), (6). The system was "established as a part of the Division of Personnel in the office of the Government Secretary," with the Director of Personnel acting as both administrator of GERS and secretary of the board. Id. § 715(c).3
Act 479 also purported to fund GERS. It implemented section 718 of the new Retirement Code, which provided first that "[t]he various obligations of the system shall be financed in accordance with actuarial reserve requirements from contributions by members, contributions by the employer, interest income, and other income accruing to the system." Id . § 718. Section 718 then required employees to contribute to GERS via a "deduction from compensation" at a rate of four percent, with an annual compensation cap. Id. It also set an annual compensation floor so that the GVI, as employer, would contribute four percent for an employee "whose minimum rate in his class of position is $1200 per annum, or less." Id.
Unlike the specified employee contribution rate, section 718 did not fix the rate for the GVI's employer contribution. Instead, Section 718 obligated the GVI to "make [employer] contributions concurrently with the contributions by members in an amount which, if paid during such service, and added to the members’ contributions, together with regular interest, will be sufficient to provide actuarial reserves" for the payment of benefits under the system. Id. These concurrent employer contributions were to "be determined by applying a percentage rate to the aggregate compensation of the members for each regular payroll period." Id. Section 718 provided for an annual computation "of the actuarial reserve requirements" of the system and, in a provision reminiscent of its first sentence, looked for financing to "contributions by the members as above provided and by contributions by the employer." Id.
2. The 1968 amendments. In 1968, the Legislature passed Act 2098, which amended section 718. Act of February 8, 1968, No. 2098, 1968 V.I. Sess. Laws, Pt. I, 9. Act 2098 divided section 718 into subsections, with its first sentence on "actuarial reserve requirements" becoming subsection (a). Id. § 718(a). Act 2098 retained the four-percent employee contribution rate but changed the compensation caps and minima. See id. § 718(b), (c). It also slightly modified the provision for annual computation of the system's actuarial reserve requirements. Id. § 718(e). In a gloss on the original language of subsection (f), Act 2098 provided that "[t]he employer shall make contributions which together with the members’ contributions and the income of the system will be sufficient to provide adequate actuarially determined reserve for the annuities and benefits herein prescribed." Id. § 718(f). And for the first time, the employer's contribution rate was fixed at a percentage of employee compensation—on a temporal gradient from 4.00% for the period before July 1, 1968 to 7.63% for the period after July 1, 1971—by the terms of subse...
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