RICHMOND — Virginia localities, teachers and employee groups are urging Gov. Bob McDonnell to veto or amend what they call a slapdash, last-minute overhaul to the state’s $54 billion pension fund.
The proposal passed by the General Assembly would curb benefits and add a new “hybrid” plan starting in 2014 that combines a traditional pension with a 401(k) contribution plan in an effort to shore up a system facing about a $24 billion shortfall.
The real issue, said Delegate Jennifer L. McClellan, Richmond Democrat, is not the employee benefit packages, but the fact that the legislature just twice in the past 20 years has funded the retirement system at recommended rates.
“We keep passing the buck, and ultimately somebody’s got to pay the bill,” she said. “And I don’t think it’s fair to expect state employees, local employees and local governments to pay it.”
The reforms passed by the legislature will require the state to gradually fund the system at rates recommended by the Virginia Retirement System actuary over the next six years, but it will reduce benefits for state and local employees who have been on the job for less than five years and require employees hired on or after Jan. 1, 2014, to enroll in a “hybrid” retirement plan that combines a more traditional, defined-benefit pension with a 401(k)-style element.
S. Chris Jones, Suffolk Republican and chairman of the House Appropriations subcommittee on compensation and retirement, said passing the reforms signified a bipartisan commitment in both houses to ensure the long-term solvency of the system.
“These bills are the culmination of efforts over the past three sessions by the General Assembly to enact common sense reforms to the VRS for the benefit of its members, both current and future employees,” he said.
Advocates had grave concerns about the hurried nature that went into the final construction of a bill that will affect employees around the state. Robley Jones with the Virginia Education Association said pension reform was thought to be dead the day before the General Assembly adjourned March 10, but a package ended up before the House and Senate the next day — with little time for many to parse through the details.
“We got the conference report seven minutes before debate began,” Ms. McLellan said. “It was 69 pages long for one conference report. How many people do you think read that? How many people do you think fully understand what was in these bills?”
“This General Assembly did not do due diligence, and the Virginia citizens need to know that, if nothing else,” said Kitty Boitnott, president of the VEA.
The overhaul also calls for local employees, beginning July 1, to pay a 5 percent contribution into the retirement system to be offset by a 5 percent raise. Because localities will have to cover increased retirement contributions and federal taxes as well, though, they are left on the hook for millions of dollars in additional costs as they attempt to wrestle with their own budgets.
Earlier this month, the Virginia Association of Counties, Virginia Association of Superintendents, the Virginia Municipal League and the Virginia School Boards Association wrote to Mr. McDonnell urging him to amend the bill.
Local school boards will be able to phase in the requirements over a number of years, and Mr. McDonnell is weighing an amendment that would allow local governments to do the same.
But the groups want him to put a re-enactment clause on the bill so it would be reconsidered in the 2013 session. Absent that, they want him to remove the pay increase requirement or leave the decision up to localities, citing the millions of dollars in costs in that provision, which they said does nothing to reduce the system’s unfunded liabilities.
“City, county and town revenues are either flat or still declining, and local governments and school boards face increased costs for retirement, insurance, utilities and gasoline,” they wrote. “Local governments simply do not have the revenue resources to pay the additional costs that will be incurred by the implementation of SB 497.”
The governor is currently reviewing the legislation, according to a spokesman.