State passes major retirement overhaul, but not without controversy
RICHMOND, Va. (WTVR) – While the state budget and the ultrasound bill have grabbed all the headlines at this year’s General Assembly session, a package of bills that would fundamentally overhaul the state’s retirement system passed with little fanfare last weekend, mere minutes before the end of session.
The number of people affected by the three pieces of legislation stands in the neighborhood of several hundred thousand.
“That was a huge accomplishment this session,” said Governor Bob McDonnell earlier in the week, following his announcement of Virginia’s falling unemployment rate. “We came up with an agreement that is good, that is dramatic in terms of how it will bend the cost curve and improve our solvency down the road.”
McDonnell also called the passage of the retirement reform bills, “one of the most significant developments in Virginia in the three years that I’ve been governor.”
But the VRS reform doesn’t come without controversy.
While the legislation passed easily in the Senate, the vote was along party lines in the House, where Democratic delegates like Jennifer McClellan, D-Richmond, feared that lawmakers had too little time to digest the massive legislation before making an informed decision.
“We got the conference reports for the bills about a half-hour before we adjourned (for the session),” said McClellan, “and literally minutes before we started voting on it.”
“I think that lawmakers *think they understood what they were agreeing to,” continued McClellan, “but they did not have time to read the actual conference report, and that’s the law.”
The trio of bills will change all sorts of things for state and local government workers, from the package of benefits they receive to the amount of salary they contribute.
While lawmakers, policy specialists and advocacy groups with a stake in the outcome all had a difficult time explaining to CBS 6 the full impact of the legislation, the basic tenets are as follows:
- Teachers and local government employees will all have to contribute 5 percent of their salary to retirement, with localities required to offset that contribution with corresponding raises (State government employees underwent a similar change last year)
- Most state and local employees with less than 5 years of experience will see a reduction in benefits, such as total compensation package, lower multiplier, capped Cost of Living Adjustment, etc.
- Most state and local employees with between 5-20 years of experience will have their Cost of Living Adjustment delayed until the age of 65
- All new hires as of Jan.1, 2014, will have a mandatory retirement plan that consists of one part defined benefit, and one part 401K-style defined contribution; employees will contribute 4% of their pay to the defined benefit, and 1% to the defined contribution
- State and local employees with 20 or more years of experience will not be affected by the changes
The slew of reforms approved by the General Assembly Saturday evening came as a surprise to Virginia Education Association President Dr. Kitty Boitnott, who accused lawmakers of trimming retirement benefits now to try and compensate for underfunding the VRS for years.
“Instead of taking responsibility for it, they shifted the blame to the teachers who are the recipients,” said Boitnott. “Which makes absolutely no sense.”
Boitnott pointed to actuarial analysis from the Joint Legislative and Audit Commission, which predicts that a 60-year-old teacher making the average teacher salary will lose between $874 and $9,129 in annual benefits, depending upon the rate of their contribution.
Furthermore, Boitnott believes new hires stand to suffer a greater financial loss that could push them out of the field of teaching.
“People are going to be looking to Virginia as a place to come and work and teach,” said the VEA president. “They’re not going to want to come to Virginia if they’re going to take a hit in their salary in order to be able to contribute to their retirement system.”
With respect to the ‘hybrid’ system requiring new hires to manage some of their retirement money in a 401K-style account, Boitnott added, “most of the teachers are not savvy investors, that’s part of the problem- they don’t get classes in how to become the next Warren Buffet of the world.”
Governor McDonnell referred to the “old defined benefit program” as a cost driver and a large reason why Virginia is currently looking at a $20 billion unfunded liability in its retirement fund.
McDonnell says he plans on signing the three bills, but he may add amendments to be considered by the full General Assembly.