VRS reform remains a possibility; governor’s proposal is likely a starting point
By JR Hoeft | Monday, December 20th, 2010 | PolicyVivian Paige’s post regarding the Virginia Retirement System prompted me to seek clarification from Del. John Cosgrove as both a blogger and his constituent.
When she boldly proclaims the reform is “not gonna happen”, she’s jumping to conclusions about Cosgrove’s remarks.
On Friday, the governor proposed as a budget amendment:
Reform of Virginia’s Retirement System (VRS) requiring all state employees to contribute 5% to their retirement plans. The reforms will put over $300 million in additional funds into the VRS system in FY 2012 alone and will add $4.2 Billion over the next 10 years. The employee contributions will be matched with a 3% pay raise.
The dilemma though is that the state has been funding employee contributions to their pension since 1983 (See Virginian-Pilot)
Cosgrove sees this as a moral obligation to current state employees to remain faithful to the agreed upon terms of retirement system – the agreement employees were hired under and have grown accustomed to expect. But he has no problem changing the system for new employees – something the federal government also did in the 1980′s when it reformed its pension system.
“Governor McDonnell has floated the idea of giving a raise to current employees prior to imposing the new system, and there might be some merit in that method to reduce the negative financial impact on the individual employee,” Cosgrove wrote me via email. “We will have to wait and see what the real numbers are before making a decision.”
Which means that he’s still open to the possibility of VRS reform, but, as with most of the budget amendments or any proposal from the governor, it will undergo the necessary scrutiny from the General Assembly. That’s why we send them there.
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About the author
Conservative to the core; liberal with his opinion! J.R. has been involved in politics for over a decade and has worked on several campaigns in Hampton Roads. He has served on the Executive Committee of the Republican Party of Chesapeake and the Central Committee of the Republican Party of Virginia. He is also the director of “Blogs United” in Virginia. E-mail J.R.. Follow J.R. on Twitter.
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17 Responses to "VRS reform remains a possibility; governor’s proposal is likely a starting point"
The state already changed the rules for new hire last year.
The problem with the governor’s plan is that it doesn’t hold current employees harmless.
Steve is right: new employees already pay into VRS. And what Cosgrove said in the email to you is exactly what I posted: that he opposes having existing employees pay into the system. McDonnell’s latest change is for the existing employees, something that Cosgrove does not support.
Jumping to conclusions? Hardly. Perhaps you misread the post.
This is the minimum required, but more must be pursued. Certainly, all employees should as a minimum contribute their share, but the General Assembly should consider requiring new employees to participate in a 401k type plan instead of a defined benefit plan like VRS, and allowing existing employees to switch to a defined contribution plan as well. They must also take the steps to invest in VRS so it can pay out promised benefits to current employees.
MB- from an employee’s point of view, you’d be crazy to switch from a defined-benefit plan to a defined-contribution plan. The defined-benefit plan is better for the worker and worse for the employer, that’s why they are disappearing.
Well Steve, it depends. If the Governor, GA, and member jurisdictions don’t solve the “ticking time bomb” then some may prefer to lock in their VRS benefits but switch to a defined contribution plan for the future that is portable and contolled by the employee. I don’t think one size fits all, and employees are bound to consider the steps the GA and VRS must take to make the system solvent. Those choices may favor the Commonwealth rather than the employee, and may give credence to the need to switch.
Vivian,
It appears Cosgrove is willing to give this the governor’s proposal a hearing and it is not DOA as you say. I’m looking forward to the discussion, because employee benefits have become a huge cost to government.
From my post:
Sorry you have a reading comprehension problem.
In the interest of full disclosure, I have to admit that I will be eligible to receive a VRS retirement payment. I was employed by the City of Chesapeake at the time, and while I may not have been really clued in, I did realize after the fact that the City picked up the state’s share. Frankly, it just happened, and rather than claim this was a promise, I would say it was just another way to equalize pay with the private sector. In my view, over time, the equalization required now is that public sector compensation in many job categories exceeds the private sector, so an adjustment back to contribution by the employee is overdue.
Vivian,
I don’t have a comprehension problem. I am saying that there is likely going to be some sort of compromise between House Republicans and the governor regarding this issue…but the proposal is certainly not DOA.
Personally, I think Cos (and you by default) are right. We owe it to existing employees to pay them in good faith what they expected to earn in retirement savings. Doing something retroactive is totally bogus and is something I oppose too.
Don’t be so sensitive. The point is that it’s not dead, just going to be debated.
My goodness JR, how can you refuse to see that States face a crushing debt from unfunded pension liabilities, and it is our duty as citizens to rein in this out of control crisis. Clearly, the stage has been set for conflict between public sector workers and taxpayers. In Virginia, we are in the thick of this issue and the Governor and the Legislature have a duty to address it. Last year, they addressed it by deferring $150 M in fourth quater payments last year, and put off an additional $620 M in payments for the biennial budget just adopted. Action is required: all employees should pay their own match; require all new employees to participate in a defined contribution plan (401k type); review public compensation levels; fulfill the state’s obligations to VRS. This may not be a topic for Bearing Drift (too important), yet this is what governance is all about.
Mr. Barrett,
There is “absolutely” no way that the Commonwealth of Virginia- public sector jobs-are paid more than private sector positions. My wife is currently employed in the private sector with her wages being 20-25 percent higher for like positions. The differenece is that private sector position expect their employees to cover their retirement. I am sorry that the times are bad for private employees who were benefiting highy during the early 2000s while public employees and i mean state employee not federal where not.
David, I don’t know you nor you wife, so I can’t comment on the specifics of the situation that you mention. However, on average, public sector compensation in the last decade or so has risen quite well while in many cases, private sector compensation has been stagnant. No one denies that public benefits generally exceed those in the private sector. Add the results of these two trends, and I believe it is clear that the old saw about public sector compensation lagging private sector compensation is wrong. That said, reform is needed.
I’d support employees contributing to VRS once the state has fully funded and met its own VRS Board’s funding requirements. After all, it has not been fully funded in ten of the past eighteen years.
Reform is needed but not until the state has fully funded and made the VRS system whole once again. Once fully funded, we can honestly evaluate and determine to what level the employees should contribute.
Regretfully William, that is not going to happen, unless the federal government steps in and buys out the systems that are underwater, and treats them like the private sector plans that were not funded as well. Frankly, the time is right for that to happen, and this would ensure employees that they would have substantially all of their benefits instead of the risk they face now. When so called fiscal conservatives like our Governor fail to pay what is due, it is time to realize that action taken now to change over to defined contribution plans is long overdue and may actually be in new employees’ best interest.
So the politicians failed to fully fund the program and the employees who have been contributing since the early 1990′s now have to make up the difference? BS…
You do remember when the employees took no pay raises for a couple of years saving the state and local cities millions in return the state and cities paid the 5%? Those pay raises would compound over the years and be worth a lot more today than they were 18-15 years ago. The government saved millions, cost the employees actual pay increases and now it is time to take 5% more and change to a defined contribution benefit system?
Again that’s BS…
Sorry but I’m tired of watching the screwing the employees take just trying to serve the citizens and live a basic life after retirement. These folks are not wealthy, affluent or living a rich life style. The average VRS retirement is (if I remember correctly off the top of my head is about $26,000 a year).
I can already tell you the services level(state and city) is declining in quality as the employees begin to see they are just being used. Minimum pay means minimum service and minimum concern for quality. Sad to say it, but this becomes a reality more each year…
Mike: http://www.post-gazette.com/pg/10318/1102839-109.stm?cmpid=newspanel
Yes William, I find mcu with which to agree in your post an in the article. That said, while there are demagogues on both sides of this issue, I choose not to see it as a left/right issue. Corporate america changed to defined contributions a few decades ago except for those firms, many not extinct, that refused to see the evolving financial crisis. I fear the same will happen to the public system unless changes are made now. If not, crisis is inevitable.
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