RICHMOND, VA (WWBT) - Facing what he called "enormous unfunded liabilities," Gov. Bob McDonnell today called on state employees to pay 5 percent of their salaries into the Virginia Retirement System.
Under the McDonnell plan, all state employees will begin making the contributions effective July 1, 2011. To offset some of the impact, McDonnell announced that state workers will also receive a pay raise of 3 percent effective at the same time. The net effect is a 2 percent decrease in employee take home pay, McDonnell said.
In a statement, McDonnell said, "I am a 22-year, vested member of the Virginia Retirement System. I know the reforms we are proposing today will not be easy, however, given our enormous unfunded liabilities, I will not pass on a broken state pension system to another governor."
McDonnell said his proposal, which is subject to General Assembly approval, will pump an additional $300 million or more into VRS in FY2012.
Stay with NBC12 for more details on this developing story. See excerpts of the release below:
RICHMOND- In the face of an unfunded liability of $17.6 billion, combined with a growing number of state employees approaching retirement age, Governor Bob McDonnell announced today broad reforms to ensure the long-term solvency of Virginia's state retirement system. Under the McDonnell plan all Virginia employees will now contribute 5% to their retirement plans for the first time since 1983. Employees will receive a 3% pay raise at the same time, leading to a net 2% employee contribution to the system and a 2% reduction in take home pay. The changes will pump an additional $300 million or more into the Virginia Retirement System (VRS) in FY 2012 alone. According to VRS, $300 million invested now and each year thereafter would grow to $4.2 billion in ten years.
The Governor's full package of retirement and pay changes consists of:
- Increase the employer contribution paid on behalf of state employees and teachers for their defined benefit retirement programs by 2 percentage points effective July 1, 2011. The Governor has put the additional 2%, approximately $122 million, in the budget for this purpose.
- Consistent with most states and private employers, require state employees hired prior to July 1, 2010, to pay the 5% employee share of contributions for their defined benefit retirement programs administered by VRS effective July 1, 2011.
- Provide a 3% salary increase for defined benefit enrolled employees hired prior to July 1, 2010 is provided effective July 1, 2011. This will in effect mean a 2% net employee contribution to retirement and a 2% decrease in employee take home pay, with the state effectively paying 3%
- Afford localities the same options to require the same 5% local employee share of contributions, but only if such requirement is offset by a 3% or more salary increase.
- Provide the opportunity, again in December 2011, for a one-time contingent performance incentive bonus to all state employees of up to 2% to offset reduction in take home pay, tied to end of year savings and spending reductions.
- The bonus will be based on generating budget savings of at least twice the amount of the bonus, and contingent upon a satisfactory job performance evaluation
- No changes in health insurance premiums or benefits for state employees.
- Reduce the employer contribution for optional retirement plans from 10.4% to 8.5% for employees hired prior to July 1, 2010.
- Redirect current funding to raise paid employer contributions for teachers by 2% , similar to state employees
- The Commonwealth will offer a new optional defined contribution plan for all employees effective July 1, 2011. This will be done through legislation and details will be released at a later date
Speaking about the reforms, the Governor remarked, "I am a 22-year vested member of the Virginia Retirement System. I know the reforms we are proposing today will not be easy, however, given our enormous unfunded liabilities, I will not pass on a broken state pension system to another governor. I know what it would mean to the long term solvency of our retirement system if we do not act boldly and immediately to address the challenges we face. The system faces an underfunded liability of $17.6 billion. It is funded at only 75% of its future liabilities, and that is projected by VRS to decline to 61% by 2014. Investment returns, even in the strongest of bull markets, cannot be expected to close a gap of this magnitude. Our retirement system needs additional funding, and that is what we are going to provide."
The Governor further noted, "Hundreds of thousands of Virginians depend upon our system for their future financial welfare and stability. To not make these practical changes now would just be putting off today what would have to be done tomorrow, when the crisis would have only worsened and our choices only gotten more limited and more difficult. We will take the necessary actions now."