The governor, house, and senate also proposed reducing the contribution that localities (such as Fairfax County Public Schools) pay into the Virginia Retirement System (VRS). The VRS is the major retirement system for FCPS employees, but it is controlled by the state, which defines the benefit levels for employees and the required contribution for local school systems. Any reduction in the rate would need to be made up for in future years, meaning larger increases in the contribution that FCPS must make in outgoing years. If the state adopts the reduced rates as proposed, this would reduce expenditures in FCPS' budget for next school year. However, this short-term fix has long-term consequences.

Virginia Retirement System; new employees. Modifies for new employees, all the defined benefit retirement plans administered by the Virginia Retirement System ("VRS"), as follows: (i) requires employees to contribute five percent of creditable compensation, and (ii) increases the number of months used to calculate average final compensation from 36 to 60, (iii) increases the cost, and decreases the time in which employees may purchase certain prior service credits, and (iv) reduces the portion of the increase in the Consumer Price Index used for determining annual retirement allowance supplements ("COLA") from three percent plus one-half percent of the additional increase up to seven percent, to two percent plus one-half percent of the additional increase up to ten percent. The bill also decreases the Commonwealth's contribution for employees in institutions of higher education participating in an optional retirement plans by 2.4 percent of creditable compensation.

In addition to these modifications, for new state and local employees covered under the main defined benefit plan, (i.e. excluding the separate plans for state and local law enforcement employees and judges), the bill changes the requirements for unreduced early retirement benefits from 50 years of age and 30 years of creditable service, to one whereby the sum of age plus years of service equals 90. The average final compensation multiplier for new state and local employees excluding law enforcement employees, and for new judges, is reduced from 1.70 percent to 1.65 percent. Finally, for new judges, the weighted years of service factor used in calculating years of creditable service is reduced from 2.5 to 2.

- Source:  http://leg1.state.va.us/cgi-bin/legp504.exe?101+sum+HB1189

With a few days left before our Senate budget is presented, all eyes are on the Virginia Retirement System (or "VRS"), which holds the pensions for hundreds of thousands of state and local employees.

The VRS has a current value of $48B, which is roughly 80% of its value from fall 2007 when the stock market was at its zenith. Currenlty, the state and localities make about $1.1B a year in contributions to VRS. That's a significant share of our state budget.

Senators also seemed somewhat wary of a seperate pension proposal unveiled by Gov. Bob McDonnell Wednesday that would essentially underfund the pension plan by $508 million over the next two years, repaying the figure in future years. The pension proposal amounted to more than 20 percent of the budget savings McDonnell proposed Wednesday.

Most industry and government experts say that pension systems that have fallen below 80 percent funded are in poor health. As of summer 2008, Maryland was 78 percent funded, while Virginia was at 84 percent. Both states saw large investment losses over the next 12 months, with Maryland's pension funds falling 20 percent and Virginia's dropping 21 percent. Those losses will make it even harder for the states to keep pace with the 8 percent return on investment assumption, the study noted.
Maryland also received poor marks in the report because its government contributions are falling short. In 2002, the state adopted a formula that prompted a sharp drop in pension funding levels. The state's pension board has asked the legislature to amend this approach. Yet in 2006, even as funding levels continued to decline, the state promised even more generous retirement benefits to teachers and other public employees. State officials acknowledged problems with the funding formula, but said they cannot be changed before the recession eases.

In Virginia, the House of Delegates passed legislation that would curtail benefits for employees hired after July 1. The bill, which state officials say would enact one of the most significant changes to the state's pension system in decades, would require new employees to pay 5 percent of their salaries toward their retirement benefits, reduce pension payments to those workers and lift the age and years of service they would need to retire. It is estimated that the measure would save $3 billion over the next 10 years. The state Senate has yet to take up the legislation.

"The Virginia Retirement System has $49 billion currently," said Jeanne Chenault, spokeswoman for the system. "That is enough to sustain the system and provide those benefits to the current members and retirees. . . . It's still a very robust system." Still, the state since 2005 has been using accounting methods and rosy investment assumptions that allow it to contribute hundreds of millions of dollars less into its pension funds each year than what its own pension board recommends.