Governor McDonnell has just upped the ante with the VRS, the Virginia pension fund. He gets off on the wrong foot by saying that the pension fund has been problematic for years and years. That simply is not true according to reports over the years from outside sources and independent audits. VRS has only come under fire in recent years, specifically after the crash of 2008. McDonnell’s attempts to paint the plan as compromised and unsustainable are purely political.
McDonnell has outlined his plan which will affect nearly 90,000 state employees, according to the Washington Post:
RICHMOND – Virginia Gov. Robert F. McDonnell (R) proposed Thursday that 87,000 state employees begin making annual 5 percent contributions – the first in nearly three decades – to the state’s retirement fund as a way to shore up the commonwealth’s pension system.
Virginia is one of only four states where government workers make no annual contributions to their retirement fund, the result of a 27-year-old deal in which the state agreed to pick up employee costs in lieu of a pay raise in 1983.
Employee salaries have been frozen for four years because of the economic downturn. To help offset the pain of his pension proposal, McDonnell will request that the General Assembly approve a 3 percent pay raise this year. Employees would see a net reduction in their take-home pay of about 2 percent.
McDonnell will incorporate the policy proposal into a package of budget spending and cuts he will unveil Friday to members of the money committees in the State Senate and House of Delegates.
McDonnell presented the proposal, which he will ask the General Assembly to consider when it convenes in January, as a shared sacrifice between employees and the state to ensure the long-term solvency of the retirement system.
McDonnell also proposes for the state to pick up a 2% contribution to the fund. That would make a 7% contribution per state employee. The increase should go a long way towards fixing what is wrong with the pension. McDonnell also admitted that the loan from the system was a very bad idea. The loan begins the payback in 2013 and will continue over the next 10 years.
“This is a start for fixing a pension system that has been out of whack for years and years and years,” McDonnell told reporters. “I will not pass on a broken system to another governor. I will make every effort this year to begin to fix this system.”
Of course the system is out of wack. Several jurisdictions haven’t paid what they owe including the state. There was a stock market crash, and the State used the pension fund as its own ATM. It hasn’t been out of wack for ” years and years and years.” McDonnell simply is not being truthful. To add insult to injury, Eric Cantor’s wife is the chairman of the board of directors of VRS. While not exactly conflict of interest, it seems a little too cozy to me.
The McDonnell plan will also involve some 130,000 teachers. Localities will be allowed to ask the teachers to pay their ‘shared sacrifice’ of 5% if the teachers are guaranteed a 3% raise next year. The question then becomes, how long will that 3% be guaranteed? It sounds like for just 1 year. The net loss would be 2% of one’s salary.
All of the changes taken together would result in an infusion of $311 million to the pension fund, which has been pressured by shrinking investment returns during the economic downturn. A recent state audit showed the state faces unfunded pension liabilities of $17.6 billion in coming years.
“In order for me to be able to look an employee in the eye and say ‘your money is going to be there when you retire,’ these are the kind of changes that have got to be made,” McDonnell said.
McDonnell also is recommending a 2% bonus to state employees if there are sufficient funds at the end of fiscal year 2011. (June 30). This bonus would lessen the pain of the first year of shared sacrifice. McDonnell did say that this plan does not affect the $620 million dollars borrowed from VRS to balance the state budget and that repayment would begin in 2013.
McDonnell took fire after his decision to dip into the retirement fund to close a budget gap, which also required billions in spending cuts. He told reporters Thursday that borrowing from the Virginia Retirement System – a maneuver he and the General Assembly jointly undertook just a few months ago – “frankly, wasn’t a good idea.”
He said that the money would be repaid and that the state had not siphoned enough to affect the already-underfunded system in the long haul.
But Democratic Party of Virginia Chairman Brian J. Moran said McDonnell balanced the budget this year only through the loan and was now “asking state employees to pay for his sleight of hand.”
Del. David Englin (D-Alexandria) called on McDonnell to support a constitutional amendment that would prohibit raiding the employee retirement system to pay state operating expenses in the future
Englin is correct. The VRS cannot be raided again. It is not the state ATM. On the other hand, McDonnell certainly didn’t cause VRS to go out of wack. There were many reasons for the problem, some inherited by McDonnell. I commend him for trying to fix the problem rather than brushing it under the rug. I also commend him for admitting that the state putting its hand in the cookie jar was a bad idea.
As for those who are now saddled with paying their contribution, well…many people before them paid into their own pension fund, especially those state and local emplyees who picked up the full tab before 1983. It is what is. It was a nice ride and now the party is over. The VRS must work for past, current and future employees. The article covered the state employees and the teachers. What about all the county workers? They were not mentioned. What can our Prince William County employees expect in the future?
On thing, we can expect the General Assembly to be on fire with this one, come January. The VRS issue was sneaked in last year. Now it has people’s attention. Moonhowlings was one of the first places to start howling, last year.