Virginia public employees may have to start paying their own 5% VRS contribution if some lawmakers have their way. According to the Richmond Times Dispatch:
Virginia legislators are preparing to take a fresh look at whether to require state and local government employees to pay their full share of pension costs.
Faced with rising rates to pay for long-term liabilities, members of the General Assembly are considering requiring all public employees — not just those hired after last June 30 — to pay 5 percent of their salary toward their pensions.
The legislature also is likely to discuss whether to offer state employees the option of contributing to a 401(k) plan they can manage themselves instead of a defined-benefit plan run by the state.
“There is no doubt this issue is going to be revisited this session,” said Del. S. Chris Jones, R-Suffolk, chairman of the House Appropriations Committee’s subcommittee on compensation and retirement.
Jones also said he is disappointed that most local governments and school systems chose to pay for new employees’ share of pension contributions.
A new law took effect last July 1 that allowed localities to hold new employees responsible for their own contributions. Very few localities took advantage of this offer. About 80% continued paying this benefit for new employees.
…[T]he governor and the legislature also deferred paying $620 million into the state and teacher pension plans to balance the $70 billion biennial budget. That diminished the retirement system’s ability to pay future liabilities at the same time it lowered its expectations for returns on market investments. The result is intensified pressure on contribution rates, which will be reset in 2012.
McDonnell has promised to begin making up those deferred payments in the coming year, but he wouldn’t say last week whether he will propose to reverse a 27-year-old deal that allowed the state to cover employee shares of their pensions instead of raising their pay.
In an interview last week, McDonnell said he will recommend changes to the retirement system when he reveals his proposed budget amendments Friday, but he would not elaborate.
“What I’m interested in is the long-term solvency of the retirement system,” he said, adding that he has 22 years of state service vested in the system.
McDonnell said he created a work group several months ago to consider pension options. He cited concerns about unfunded, long-term liabilities; the increasing number of employees retiring; and the potential for big increases in employer contribution rates next year.
The amount borrowed from VRS keeps changing. At one point it was in the neighborhood of 6 billion dollars. At one point, VRS received accolades for being one of the best handled retirement systems in the United States. How could things have gone south so quickly. Perhaps Eric Cantor’s wife can explain it. She is chairman of the board of directors of VRS. We cannot ignore the fact that large sums of money were borrowed from the pension fund and that is part of the reason it isn’t in as good of shape as it once was.
Of course the VRS lost money during the \crash of 2008. However, it lost around 20% which is a whole lot less than what most individuals lost. The investments were very solid. As for employees electing to go the 401k route rather than the pension route…what fool is going to fall for that one? No one would do that unless the pot were sweetened a great deal.
Many people rely on the VRS for their retirement. All state employees, judges, magistrates, commonwealth’s attorneys, sheriffs, police, county employees, and teachers are part of the system unless the locality elects to have its own form of retirement. It is unfortunately that this retirement system appears to have appendages on the chopping block because of state deficits. Strange that it was the first place the state looked to borrow from when the budget needed balancing.
Back in the day when employees had to pay their own 5%, they weren’t given an option to join or not join. It was required. How is that different than being required to have health care? Can a government require an individual to buy retirement? Perhaps Cuccinelli will sue the state over that one, should it come to pass. Wait…he is the state. Ooops.
[note: highlighting by administration.]
[UPDATE: noon 12/12/10- Blue Virginia’s take on this issue http://www.bluevirginia.us/diary/2572/pension-plan-pay-cut]