Mr. McDonnell will recommend to legislative budget writers Friday that employees covered by the Virginia Retirement System contribute 5 percent of their pretax salaries toward their pensions starting next year.
That would more than negate a proposed 3 percent pay raise for 2011 — the first for state workers in four years — and effectively reduce take-home pay by 2 percent.
At the same time, the state will increase its contribution into the state-supported pension plans by about 2 percent.
The move affects about 87,000 state employees and as many as 130,000 local public-school teachers. The state began paying its employees’ 5 percent share to the retirement fund in 1983, a concession workers got that year instead of pay raises. Mr. McDonnell’s plan effectively ends that.
Virginia is among four states that pays both the employer’s and employees’ contributions into the pension system.
But the McDonnell administration was forced to take the step after the Joint Legislative Audit and Review Commission found unfunded liabilities totaling $17.6 billion for the pension plans VRS manages.
“The system is broken and badly in need of repair,” Mr. McDonnell said in a conference call with reporters. “I will not pass on a broken system to another governor.
Mr. McDonnell’s proposal will pump about $311 million back into the VRS starting in the fiscal year that begins July 1, 2011, Finance Secretary Richard Brown said in a briefing with reporters Thursday.
While employees take what amounts to a net cut in pay, Mr. Brown said, it’s not money lost. The 3 percent pay raise, unlike the one-time 3 percent bonus state employees recently received, is a permanent increase in their base pay and results in higher monthly benefits at retirement.
But the developments represent even more burdens for city and county governments, who will have to decide whether to continue paying the full employee share for schoolteachers. Teachers are not considered state employees.
Localities, which already have absorbed more than $1 billion in state funding cuts in the past year, would pick up about $105 million of the $311 million to be paid into VRS in the next budget.
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