General Assembly urged to increase pension funding
The Virginia Education Association on Thursday urged the General Assembly to properly fund the state’s $50 billion pension system as Virginia, like most other states, grapples with how to dole out benefits to an ever-increasing number of workers hitting retirement age.
Ms. Boitnott called on the General Assembly to raise the state contribution rate to its employee pension plan, the Virginia Retirement System (VRS), to a number recommended by the system’s administrators to keep the pension plan solvent.
“This is an opportunity to take a real and meaningful step toward properly funding the VRS,” she said.
Gov. Bob McDonnell, a Republican, supported a plan during this year’s legislative session that would require all state employees to pay into their pensions for the first time since 1983. A 5 percent employee contribution would have been partially offset by giving employees a 3 percent raise.
But the General Assembly balked at the proposal, instead opting to require employees hired before July 1, 2010, to pay 5 percent of their salaries into their pensions in exchange for a 5 percent raise. Those hired after that date already had to pay into the system.
Lacey E. Putney, Bedford independent and chairman of the House Appropriations Committee, also introduced a plan for an optional defined-contribution system, akin to a 401(k), that had been an aspect of Mr. McDonnell’s proposal. It did not pass.
The pension debate in Virginia comes as states across the country grapple to come up with their own solutions to shore up depleted retirement funds.
New Jersey Gov. Chris Christie, a Republican, signed legislation dramatically overhauling benefits for about a half-million public-sector employees with measures that include halting cost-of-living adjustments for those already collecting pensions and raising the retirement age from 62 to 65 for new hires.
Even Rhode Island is trying to revamp its system. Gov. Lincoln Chafee, an independent, this week announced a plan to help shore up the system, hamstrung by $7 billion in unfunded liabilities, that would include, in part, a hybrid retirement system combining 401(k)-style plans with traditional pensions.
Much of it is simply math. The number of retired state employees in Virginia has increased from 39,252 in 2005 to 52,480 in 2011, and the number of retired teachers has jumped from 50,532 to 71,010.
But some say the major issue is not benefit packages but, as Ms. Boitnott pointed out, that the General Assembly hasn’t listened to recommended state contribution rates from VRS‘ Board of Trustees for the bulk of the past 20 years.
“In good times, they say, ‘The investment return’s going to pay for this thing,’ ” said VRS Director Robert Schultze. “In bad times, they don’t have the money.”
The board on Thursday recommended the state raise its contribution rates to the pension plan to 13.07 percent of payroll costs for the next two-year budget cycle. That’s up from an already increased rate of 6.58 percent in the fourth quarter of this year. It also recommended a 16.77 percent rate for teachers, compared to the current contribution rate of 6.33 percent.
The state also must pay back an estimated $620 million it deferred to help balance the state’s current two-year budget. Mr. McDonnell tried to restore $311 million into VRS last session and increase the contribution rates, but the General Assembly ultimately settled on a payback of $142 million in the fourth quarter of fiscal 2012.
The VRS portfolio saw a 19.1 percent return in fiscal 2011, growing by $6.8 billion. It sat at about $51 billion as of October.
“It is too soon to discuss specific budget items, but the suggested contribution rates will be an important consideration as the administration moves forward with budget development,” McDonnell spokesman Jeff Caldwell said.
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