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VRS Pension Changes from WSJ Article

posted Oct 13, 2010, 10:39 AM by Unknown user

Source:  Wall Street Journal

Ever-Higher Budgets Can't Be the Norm

By Bob McDonnell

When I took office in January, we faced two massive budget shortfalls. The first was $1.8 billion in the fiscal year 2010 budget. To get this under control we cut spending and provided a financial reward for state workers to generate savings and not spend their entire agency budgets by the end of the fiscal year. Six months later we announced a $403 million surplus.

The second shortfall was $4.2 billion in the current biennial budget. Again, we cut a wide variety of programs (including in education and health), reducing state spending to 2006 levels. As a result we closed that shortfall without a tax increase—indeed we threatened a veto if the legislature passed the previous governor's proposed $2 billion tax increase. The legislature rejected the tax unanimously.

Virginia's state budget grew by 73.4% from 2000 to 2009, much faster than the rate of growth in population plus inflation. This is unsustainable and unacceptable, and the budget cannot be seriously restrained without addressing its two primary drivers: personnel and programs.

As a result, we supported a significant overhaul of Virginia's pension system. All state employees hired after July 1 of this year will now, for the first time in a generation, contribute to their own pensions. With pension-system reform, we will save an estimated $3 billion over the next 10 years. Actuaries estimate that in the long run, our reforms will reduce the total cost of Virginia's pension system by 10%.

Our second major reform was an immediate, statewide hiring freeze. We obtained enhanced authority from the legislature for the governor to order a freeze that covers all noncritical areas of state government, not just a select few agencies. This strict freeze, together with reductions in full-time positions, will save over $20 million a year.

Looking forward, we've also created a commission on government reform that is evaluating over a thousand ideas to save tax dollars, by doing everything from cutting and consolidating boards and agencies to creating a one-stop shop where businesses can access every license, permit and registration they need to operate. For too long, state governments have operated on the assumption that ever-higher budgets are the norm. We intend to redo the way government operates.

Mr. McDonnell, a Republican, is the governor of Virginia.


Virginia Gov. Bob McDonnell on Tuesday formally opposed letting local governments force police, teachers and other workers to foot part of the bill for their own pensions

posted Apr 22, 2010, 12:26 PM by Unknown user


Source: Washington Examiner 14 April 2010

Virginia Gov. Bob McDonnell on Tuesday formally opposed letting local governments force police, teachers and other workers to foot part of the bill for their own pensions, responding to a lobbying campaign by public employee groups who said the change amounted to a pay cut.
The budget provision would have given localities the option to mandate employees put up to 5 percent of their pay toward the retirement system, a cost now borne by the cash-strapped counties.

Read entire article.

FCTA Analysis:  Time for Virginia State Government Employees to Contribute to the VRS System

Most people living in Virginia do not know that Virginia State government employees do not contribute into the VRS. Virginia employs approximately 100,000 people and is the largest employer in the Richmond region with nearly 26,000 employees. 

The State is expecting a $1.35 billion shortfall in fiscal year 2010. The VRS funds approximately 600,000 participants. Currently, the State, as an employer contributes 6.26% of each worker’s annual salary into the VRS. 

The percentage of the state’s employer contribution varies every budget cycle. It is calculated based on actuarial studies of how much money is needed to keep the plan adequately funded. In addition, the State contributes 5% for the employee share of the worker’s annual salary. In other words, the State pays both the employer and employee share of their retirement without the employee contributing one penny!  (Read More)

Governor Proposes Underfunding VRS to Save Money for FY2011

posted Feb 27, 2010, 5:53 AM by Alexander Romero

Source:  FCPS Bottom Line Newsletter

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.

VA House Bill HB1189 - VRS Modifications

posted Feb 24, 2010, 1:50 PM by Alexander Romero

The house is presently discussing additional reforms to the VRS system. See HB 1189 for more info.

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

JLARC Recommendations to Change the VRS

posted Feb 22, 2010, 6:32 AM by Unknown user   [ updated Feb 22, 2010, 6:44 AM ]

The study conducted by the Joint Legislative Audit and Review Commission (JLARC) in October 2008 is a good starting point in the search for solutions to the VRS issues we are facing.

One question that comes up is whether or not changes to the VRS can be made for current employees.  According to the JLARC study each of the options described would apply only
to newly-hired employees and current employees in the standard VRS plan who are not yet vested in their VRS benefit. (Source Pg. 98 JLARC Oct. 2008)

2010-02-19 Compare your Pension with a Teacher's Pension

posted Feb 22, 2010, 5:27 AM by Unknown user

How does your pension compare to what teachers get? 

Teachers get three pensions: 
  1. Social security (at age 65); 
  2. Virginia Retirement (after 30 years of working); and 
  3. Employee Retirement Fairfax County (after 30 years of working).
Enter your work record into the Virginia Retirement System calculator at:  http://www.varetire.org/Members/Calculator/Calculate.asp and it will calculate your pension from that fund.  
Enter the same information into the Employee Retirement Fairfax County calculator at http://erfc.gabrielroeder.com/ERFCPortal/DesktopDefault.aspx?tabindex=1&tabid=172 and it will calculate your pension from that fund.  

Both calculators can also be accessed from http://www.fcps.edu/ERFC/index.htm.

2010-02-18 Chap Peterson 34th District Blog

posted Feb 22, 2010, 5:26 AM by Unknown user

Source:  Chap Pertersen 34th District Blog

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.

2010-02-18 From the Washington Post

posted Feb 22, 2010, 5:24 AM by Unknown user

Source:  Washington Post

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.

2010-02-18 from the Washington Post

posted Feb 22, 2010, 5:15 AM by Unknown user

Source:  Washington Post

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.

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