The U.S. Virgin Islands' Pension Fund Is 9.8% Funded. The Territory's Own Legislature Just Cut the Fix Congress Paid For.

Every full-time worker for the government of the U.S. Virgin Islands — teachers, judges, police, sanitation crews — is enrolled in one plan: the Government Employees' Retirement System, or GERS.▸ About 30 percent of everyone employed in the territory works for that government, per a 2022 USVI workforce study cited by GAO. GERS has promised all of them, and everyone who already retired, a monthly check for life. In 2021 it had 9.8 cents in the bank for every dollar of that promise — a level the U.S. Government Accountability Office found to be among the lowest of any public pension plan in the country. Two fixes were supposed to close the gap: a 2022 bond deal, and a federal tax law. Congress delivered its half in July 2025. The Virgin Islands Legislature spent the following months undoing its own.

GERS is a defined-benefit plan: it promises a fixed monthly check for life, calculated from salary and years worked, regardless of how its investments perform.▸ As of 2021 it covered nearly 19,000 people — 3,664 active "Tier 1" employees hired on or before September 30, 2005; 5,264 active "Tier 2" employees hired since; and 8,639 retirees and beneficiaries, plus 144 more beneficiaries and 1,200 additional inactive vested members no longer contributing. By the time GERS updated the Virgin Islands Legislature in mid-2024, active membership stood at 8,992 and retirees/beneficiaries at 8,770 — nearly one active worker for every retiree the plan already pays.

That structure only works if the fund holds enough to cover what it owes.▸ GERS has not, for decades. GAO's analysis put the plan at 9.8 percent funded in 2021 — $475 million in assets against $4.4 billion in unfunded liabilities — a position GAO said was worse than every other public pension plan it compared, including the two other U.S. territories running similar systems.

The gap isn't only a balance-sheet abstraction.▸ GAO measured GERS' unfunded liability against the size of the entire USVI economy and found it equal to 98.3 percent of the territory's GDP in 2021 — roughly a full year of everything the Virgin Islands produces, owed to a pension fund. American Samoa's equivalent ratio was 35.3 percent; Guam's was 18.7 percent. The root cause GAO identified is simple: the government has chronically underpaid what its own actuaries said the plan needed. In 2021, USVI's employer contribution covered just 28 percent of the actuarially determined contribution — versus 46 percent in American Samoa, 89 percent in Guam, and 85 to 113 percent typical of mainland state and local plans.

GERS tried to fix its underfunding the way many public plans have: by making the deal worse for whoever it hires next.▸ In 2005 it created Tier 2 — later hires get a lower benefit multiplier, a career-average earnings base instead of a highest-five-years base, and a retirement age of 65 instead of 60. Tier 2 employees also pay a higher average contribution rate than Tier 1 — 11.7 percent of pay versus 11.3 percent — the highest employee rate of any plan GAO compared nationally.

What they get for it is close to nothing.▸ GAO estimated the value of the employer-provided benefit each tier actually earns, as a share of payroll: Tier 1 employees earn benefits worth 14.4 percent of their pay; Tier 2 employees earn benefits worth 1.1 percent — a monthly benefit that averages $1,943 against Tier 1's $3,115 under GAO's illustrative career assumptions. GAO's own conclusion: there is "little room to further reduce benefits or increase employee contributions for Tier 2 employees without the estimated value of employer-provided benefits reaching zero."

In April 2022, the Virgin Islands Public Finance Authority closed a $955.5 million bond sale — $933.7 million in tax-exempt Series 2022A bonds and $21.7 million in taxable Series 2022B, priced to yield 4.73 percent, arranged through the Matching Fund Special Purpose Securitization Corporation.▸ The proceeds refinanced existing debt and, critically, redirected the revenue stream backing it — the federal excise tax "cover-over" on rum sold in the mainland United States — into a Funding Note promising GERS scheduled annual payments of $73.6 million to $158 million through 2052: $3.8 billion over 30 years, per GAO's analysis of the deal.

That whole structure depended on one number holding still: the enhanced federal rum excise tax rate of $13.25 per proof gallon, on top of a $10.50 base, under 26 U.S.C. § 7652.▸ For nearly three decades, Congress had let the higher rate lapse and renewed it temporarily, again and again; it expired at the start of 2022 just as the bond was closing, and reverted to the bare $10.50 rate before USVI made up the fiscal 2023 gap itself. GAO flagged the risk of a lapsed rate as the single biggest threat to GERS' solvency. By GAO's actual payment count, GERS received $89.2 million in fiscal 2022, $158.0 million in fiscal 2023, and $124.0 million more through the first part of fiscal 2024 — $371.2 million paid in, as of December 2023.

On July 4, 2025, President Trump signed H.R. 1, the "One Big Beautiful Bill Act," into law.▸ Among its provisions: it amended Section 7652 to strike the expiration date entirely and set $13.25 per proof gallon as the permanent cover-over rate, effective for spirits brought in after December 31, 2025 — ending the cycle of lapses that had put GERS' bond math at risk since 2022. Without it, the Virgin Islands stood to lose an estimated $59.2 million in GERS funding; made permanent, the higher rate is projected to deliver more than $1 billion combined to Puerto Rico and the Virgin Islands over the next decade. In 2021 alone, the cover-over sent the Virgin Islands $281 million.

Even with the rate locked in, the tax base under it is shrinking.▸ Virgin Islands rum sold in the mainland United States fell 9.1 percent in fiscal 2025 compared with the year before, and the bonds' debt-service coverage ratio dropped to 1.83 times — the first time it has fallen below the 2.0 threshold rating agencies watch on this credit.

The rum tax was Congress's fix.▸ The other half of GERS' rescue plan was entirely up to the Virgin Islands government: raise the share of payroll the government itself contributes as an employer. The GERS Board had voted to raise that rate from 23.5 percent to 26.5 percent, initially effective January 1, 2025; it delayed the increase nine months after Governor Albert Bryan warned in a November 2024 letter that the hike would be "unsustainable," resetting the effective date to October 1, 2025.

Six weeks before that date, GERS Administrator Angel Dawson testified to the Legislature's Committee on Budget, Appropriations and Finance that the plan still faces temporary insolvency in the 2030s even with the rum tax fixed — a projected average shortfall of $25 million a year against the original Funding Note schedule.▸ He modeled two paths. At the 23.5 percent employer rate, GERS runs temporarily insolvent from 2033 to 2039, needing at least $290 million in direct General Fund support to keep paying full benefits. At the 26.5 percent rate the Board had already set, the insolvency window narrows to 2036–2038, needing at least $82 million.

The Legislature rolled the rate back to 23.5 percent for fiscal 2026 anyway — the rate GERS' own modeling ties to the costlier insolvency scenario.▸ Former USVI Office of Management and Budget director Nellon L. Bowry, writing in a December 2025 op-ed, put a lifetime price on the rollback: the 26.5 percent rate would have added an estimated $351 million in employer contributions over the remaining 26 years of the rescue plan, at an immediate cost of $13.5 million a year — money that had been announced ten months ahead of its effective date specifically so it could be budgeted for. Bowry also cited the fund's more immediate track record: from fiscal 2020 through 2025, GERS paid out $730 million more in benefits than it collected in contributions, a gap covered by $473 million in Funding Note proceeds and $257 million pulled from liquidating the fund's own remaining assets.

Figures for GERS' funded status, membership, tier benefits and Funding Note payments come from GAO's April 2024 review, which draws on GERS' 2021 and 2022 actuarial valuations — the most recent audited data available at the time. More recent membership and portfolio figures (mid-2024) come from GERS' own testimony to the Virgin Islands Legislature. The FY2026 contribution-rate rollback and its estimated cost are drawn from Legislature committee records and a named former USVI budget official's public accounting of GERS Board figures; GAO has not yet reviewed these post-2024 developments.