The Shadow
RICHMOND (AP) – State employees would pay more into their underfunded pension plan if the General Assembly approves a proposal by Gov. Bob McDonnell.
McDonnell on Thursday proposed increasing employee contributions from 5 percent to 6 percent of their salary, with the increase phased in over two years. The governor previously announced a record $2.2 billion employer contribution to the Virginia Retirement System, which has nearly $20 billion in unfunded liabilities.
The governor said state employees must take on more of the load if the plan is to remain solvent.
“The simple truth is our state retirement system just will not work without both sides of the equation, the employer and the employee, contributing more in the years ahead,” McDonnell said in a news release.
The 5 percent contribution rate was established just last year, but was offset by a 5 percent pay raise. There is no similar offset for the proposed increase, which does not apply to teachers, judges and local employees covered by VRS. For practical purposes, it means state employees are being asked to fund part of their retirement for the first time since 1983.
McDonnell said his proposed 3 percent performance bonus would more than cover the hit to state workers’ paychecks in the next fiscal year.
The Virginia Governmental Employees Association promptly denounced McDonnell’s proposal.
“It’s a pay cut,” said the association’s executive director, Ron Jordan, who noted that employees’ health insurance premiums also are going up.
He also questioned whether the bonus will provide much relief because it will be tough for financially-strapped state agencies to achieve the savings required to trigger the extra pay. The bonus, at a cost of about $77 million, would be included in employee paychecks next December if they can generate at least $160 million in operating cost savings by then.
McDonnell also proposed changing the formula for cost of living adjustments and creating an optional hybrid plan that would give employees a chance to move toward a defined contribution system instead of the current defined benefits program.
The governor said the changes, along with the increased employer contribution, would generate more than $5.8 billion for the VRS in the next 21 years.
A study released last month by the Joint Legislative Audit and Review Commission said the funded status of the state employees’ pension plan had declined to 70.6 percent – well below the state’s VRS funding benchmark of 80 percent – and the teachers’ plan had dropped to 66.6 percent. JLARC said that without a boost, the two plans could erode by 2013 to 63 percent and 61 percent, respectively.
However, the study also cautioned against increasing state employees’ contribution. State workers’ salaries are not competitive with the private sector, and total compensation and benefits are just “marginally competitive,” according to the report. That makes it difficult for the state to attract and retain quality employees.
House Speaker William J. Howell, R-Stafford, said McDonnell’s proposals will help ensure the long-term viability of the pension system.
“This package presents a balanced approach that honors the commitment to state employees and teachers while taking the tough but necessary steps to protect their retirement,” Howell said.
The VRS encompasses 338,120 active state and local government employees and 165,520 retirees or beneficiaries.
