The Government Employees’ Retirement System announced Wednesday that it has once again received less than promised from the Matching Fund special purpose vehicle, underscoring how shaky rum revenues have left the pension system vulnerable despite a recent federal win.
In an emailed statement, GERS Administrator Angel Dawson said the Oct. 1 debt service payment from the Public Finance Authority fell short by more than $21.7 million. Combined with shortfalls in 2023 and 2024, the system has received $112.2 million less than pledged under the Indenture of Trust. “Those who thought that the rum excise tax cover-over rate being permanently set at $13.25 per proof gallon would guarantee promised funding to the GERS should note that it was not made retroactive by Congress, as was hoped,” Dawson said.
Rum Cover-Over and the Matching Fund Vehicle
The pension system has relied heavily on revenues from the federal rum excise tax. Those funds, known as “cover-over” revenues, are collected on every proof gallon of rum produced in the Virgin Islands and sold on the U.S. mainland, then remitted to the territory. In 2022, the government securitized those revenues by creating the Matching Fund Special Purpose Vehicle — a financing structure that issues bonds backed by future rum cover-over receipts. The idea was to stabilize GERS by directing between $82 million and $158 million annually into the system for the next 30 years.
But the payments have been unevenly distributed, according to GERS, with smaller amounts front-loaded and larger ones later in the schedule. Coupled with declining rum sales and Congress’s decision not to make the new $13.25 cover-over rate retroactive, the SPV has already delivered less than anticipated. Dawson pegged the losses at $34 million in 2023 and $56.4 million in 2024.
At a July press briefing, Gov. Albert Bryan Jr. celebrated Congress’s decision to permanently lock in the $13.25 rate, long considered the territory’s most important revenue stream. For years, the Virgin Islands had relied on temporary extensions that applied retroactively. The new law makes the higher rate permanent starting in 2026 but does not cover the gap since the last extension expired in 2021.
Bryan acknowledged the short-term squeeze, noting tequila’s rise in popularity and rum producers’ attempts to regain market share. “Spirits flow up and down,” he said at the time, adding that the administration has been actively seeking to attract additional rum companies to the territory.
Board Tries to Act – But Then Gets Blocked
To shore up funding, the GERS board of trustees last September voted to raise the employer contribution rate from 23.5% to 26.5%. The increase was initially scheduled for January 2025 but was postponed after Bryan warned in a November 2024 letter that it would be “unsustainable” without clarity on rum revenues. In June, the board reaffirmed the hike for Oct. 1, citing its fiduciary duty.
The Legislature quickly stepped in. Last month, senators passed a measure amending Title 3 of the Virgin Islands Code to strip the board of authority to unilaterally increase contribution rates. The bill not only requires legislative approval for any future hikes but also resets the employer contribution rate at 23.5% for FY 2026, which could nullify the board’s October increase.
On Wednesday night, Bryan confirmed to the Source that he had signed the measure into law. While stopping short of prescribing next steps, he suggested the responsibility could now rest with lawmakers to help address the shortfalls, since they have assumed control over how contribution rates are set.
For Dawson, the debate reflects a larger crisis. “Now that the board has been summarily stripped of that statutory authority … the countdown towards insolvency has begun,” he said Wednesday, citing actuarial forecasts that project depletion between 2033 and 2039.
St. Croix Source
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