Governor proposes huge state increase to VRS funding
By JR Hoeft | Thursday, December 15th, 2011 | PolicyGovernor Bob McDonnell is proposing in his biennial budget that the Virginia General Assembly provide the largest employer contribution to VRS in its history.
“The plain truth is our state retirement system is underfunded, and this situation threatens the system’s long term solvency. We must fund VRS at substantially higher levels so benefits will be there for the hardworking teachers, police officers, firefighters, state employees – our neighbors, friends and family members – who are depending on the system for their retirements,” McDonnell wrote in a statement.
“To do this, our budget will propose the largest employer contribution to the Virginia Retirement System in history, recommending a total of $2.21 billion in new funding to the systems for state employees and teachers. This much needed increase more than doubles the employer contributions from the FY2011/2012 budget. We cannot afford to wait in addressing this issue – the time to act is now.”
Here are the details of the proposal:
* Fully funds the regular contribution rates, assuming an 8.0 percent rate of return, 2.5 percent inflation, and 30-year amortization.
* The total VRS rate is 8.76 percent for state employees and 11.66 percent for teachers, of which 1.0 percent and 1.43 percent, respectively, are included for the payback of deferred contributions.
These numbers assume payroll for state employees as of July 1, 2011 and total creditable compensation for teachers for fiscal year 2011. The data are for employer contributions, which do not include contributions from state or local employees.
* Total Employer Contributions to VRS for FY2013 and FY2014 will be $2.21 billion ($875.9 million GF). Specifically, VRS will receive total employer contributions of $596.9 million ($270.3 million GF) for state employees and $1.61 billion (state and local) ($605.6 million GF) for teachers during this upcoming biennium.
* Total Payback of Deferred Contributions to VRS for FY2013 and FY2014 will be $264.5 million ($104.7 million GF) million, which is included in the total employer contributions described above. Specifically, VRS will receive payback of deferred contributions of $67.1 million ($30.4 million GF) for state employees and $197.4 million ($74.3 million GF) for teachers during this upcoming biennium. As promised, this budget fully funds the first two installments of the 10-year payback of deferred contributions.
“I will not pass on a broken system to another governor,” said McDonnell.
Tags:
Contribute for Conservatism!
Share this post
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.
Comments
9 Responses to "Governor proposes huge state increase to VRS funding"
How much of that funding is coming out of localities?
I support his idea to start making up the funds that Virginia shortchanged VRS since 1992. But I must say I have my doubts about his comments as that last line looks awful close to the last line of what he said in 2009:
GOV. BOB MCDONNELL FLIP-FLOPS ON STATE EMPLOYEES PENSION CONTRIBUTIONS
Truth-O-Meter
The Richmond Times Dispatch
On his way to the Executive Mansion, Bob McDonnell emphatically pledged not to reduce the state’s level of contribution to the retirement benefits of state employees.
Back In September 2009, then-Gov. Timothy M. Kaine proposed having employees contribute a portion of their salaries toward their pensions as part of an effort to close an anticipated $1.35 billion revenue shortfall in the state’s recession-wracked budget.
McDonnell didn’t like that idea, as documented on his campaign website.
“The tough fiscal climate…is no excuse for breaking a longstanding commitment to the men and women who have dedicated their careers to the service of Virginia’s people” the Republican gubernatorial candidate said.
In the release, McDonnell noted the state has paid its workers’ pension contributions since 1983 as a compromise for not offering workers a pay raise that year.
“The compromise represents a promise made by the Commonwealth to state workers,” McDonnell said. “That promise cannot be broken.”
As governor, McDonnell reinforced that commitment in April 2010.
“Current state and many local employees took their jobs with the expectation that their retirement contributions would come from their employer,” McDonnell said. “We cannot turn our back on that agreement.”
Ultimately, the General Assembly did require new employees hired after July 1 to pay the 5 percent toward their pensions, but not those working the state before that date.
Fast forward to last week when McDonnell announced that he will ask the remaining 86,000 state employees to pay 5 percent of their salaries toward their pensions.
The governor’s proposal eases the pain by raising pay 3 percent for state employees hired before new retirement rules took effect, meaning the changes would leave them with 2 percent less in take-home pay.
McDonnell said the measure was essential to prop a retirement system underfunded by $17.6 billion. The pension plan, like many public retirement systems, has been hurt by the low investment performance and inadequate support from the state government.
A year ago, before McDonnell took office, VRS was underfunded by $11.9 billion.
Stacey Johnson, McDonnell’s press secretary, acknowledged the governor’s position on employee pension contributions has changed since his candidacy. “Since that time, everyone has learned additional, significant details regarding VRS and the need significant new investment in the immediate future,” she said.
McDonnell last week told reporters, “The system is broken and badly in need of repair. I will not pass on a broken system to another governor.”
That’s a noble goal, but a reversal nonetheless. Full Flop!
BTW: You can read the General Assembly’s JLARC Report which was released on Monday 12 December online. JLARC research reported it will cost tens of millions to nearly a billion to make changes to the current VRS system.
I believe the GA members would be wise to back away from the proposals of recent years that are now shown to increase taxpayer spending. Conservative and fiscally responsible elected representatives (R & D) can not support the additional costs that recent proposals have been now shown to incure. 12 December JLARC report can be found here: http://jlarc.state.va.us/meetings/December11/Retirement.pdf
This is laudable, but what is really required is a top-to-bottom review of the entire VRS. Defined-benefit pension plans are practically unknown now everywhere except for the public sector. Even the US military is reviewing its retirement system with an eye to bringing it more into alignment with the private sector. Since fairness dictates that current beneficiaries must be grandfathered under the old system, keeping faith with promises that were made, a revision of the program will take decades to fully implement. Like Social Security and Medicare, the present VRS will be unsustainable in the future with people living well into their 80′s drawing benefits that were developed when the average life expectancy was less than 70.
WB,
How about that? Your comment and mine passed each other in cyberspace and I hadn’t read yours when I posted mine. Interestingly enough, from the quick read I gave it, this study is remarkably similar to the report of the Defense Business Board on revising military retirement.
While public teachers make twice as much as their private counterparts, this type of legislation is to put a nail in the coffin of small businesses.
http://cnsnews.com/news/article/dept-labor-public-school-teachers-are-highest-paid-state-workers-compensation-doubles
…and this is no different than any other government workers. Have to agree with Rocky on this one as the whole system needs reviewed.
Meanwhile, it is another opportunity to take a bite out of the small business owner. Big businesses will be able to take the additional taxes but this kills small businesses.
Good job Republicans!
@Rocky: I believe the General Assembly directed its own research group to conduct the report that I linked above. And I do not believe for a second that our military retirement will ever become privatized or majorly changed from its current state.
@ John Jackson: Small busines doesn’t fund or have anthing to do with VRS funding, operations nor jobs. This is 100% a state and local public employee issue. Read the 176 pages if you want to see what Virginia is recommending for the retirement system. First and formost: they recommend Virginia Fund its own system instead of shortchanging it every year except four since 1992. It isn’t an R or D issue, it is a funding responcibility. Pay your bills before you spend on new things is basic 101 budgeting… That is what JLARC recommended other changes will cost Virginia’s taxpayer tens of million to almost a billion. If it isn’t broke, leave it alone!
WB,
No one is talking about privatizing military retirement, but they are talking about major revisions. These include flexible contributions by military members, similar to the college fund contributions that exist today, merging reenlistment bonuses and specialty pay with the retirement plan whereby critical skills get increased government contributions, and vesting of benefits at a much earlier career stage with payouts postponed (much like Reserve retirement today). I can tell you that “something” is going to be done because the Defense budget is going bankrupt over medical care and defined-benefits retirement. BTW, the DBB study also takes note of the inequity of the current “all or nothing” plan whereby only 17% of all service members receive any retirement benefits at all.
Google “Defense Business Board Military Retirement” and you can read their report as well as lots of critiques of it.
Thanks. I’ll give it a read. IMO: If they want to change the military retirement system restart the draft for all over 18 then they do not have to continue to provide incentives and huge bonuses to retain volunteer military service members. I just do not believe it is politicaly possible to change our military retirement system from it’s current state.
Take care as I’ve got to go.
Leave your response
The comments section is for meaningful discussion. Readers are reminded to post comments that are germane to the article and write in a common language that steers clear of personal attacks and/or vulgarities.
Please take a moment to review our comment policy.