The last day of the recent session the General Assembly pushed through changes to the Virginia Retirement System that will result in smaller pensions for future retirees and shift even more of the burden of paying for past thefts of VRS funding to localities, state employees, and teachers.
ALEC chair Bill Howell (HB 1129) introduced a bill that makes state employees and law enforcement pay 6%, instead of the recently enacted 5% of gross income into VRS. Local employees and teachers will be required to pay 5%. At the same time, the bill contains provisions guaranteed to result in lower pensions for future retirees and a limit on cost of living increases for them. Howell also introduced HB 1130, which forces state employees and teachers hired after Jan. 2014 into a “hybrid” retirement plan that will lower dramatically the guaranteed pension of retired employees, while lowering state and local government obligations to their employees…but not for 20 years or so.
The bills rammed through in the closing hours of the legislature is the way the state has devised to make employees and local government pay for twenty years of underfunding the state’s obligation to VRS. For a long time, state politicians found it all too easy to rely on ever increasing trust fund returns from the stock market. Then, the bubble burst. The VRS piggy bank was dangerously empty, and the GOP-controlled government in Richmond had to find somebody to pay the piper. It was easy for them to finger their scapegoat: the workers themselves, as well as future retirees.
There are some facts in this whole mess that the state hopes nobody will remember.
The reason teachers and state employees were freed from paying a 5% share into VRS in 1983 was to make up for several years of no raises during the recession of the early 1980’s. The state and local school boards figured they were getting a good deal because by paying the VRS contribution, they didn’t have to pay FICA taxes on a pay increase. Now, they’ve taken all that back from employees who haven’t received pay raises for three or four years.
For 16 of the last 20 years, the state failed to appropriate its required share into VRS, the latest the theft of $620 million in 2010 to balance the budget. Now, rather than working for the next five or ten years to gradually meet its obligation to fully fund VRS, the state has taken the same route it follows for most problems: kick the can down the road until it can find somebody else to pay for its mistakes. This time it’s teachers and state workers who will retire in the future.