Pension Changes Make Things Worse


    Among the latest ways Republicans hope to close a money gap caused by two decades of using Virginia’s pension system (VRS) as a bipartisan piggy bank to balance budgets, legislators passed something that won’t help the shortfall in VRS; in fact it’s pretty much guaranteed to cost the state money. HB 1130, now on the governor’s desk, creates an optional hybrid pension plan, in which new employees can opt for a blended pension of partly a defined monthly benefit and partly a 401k-like contribution by both employee and employer.

    People might think that having even a partial defined contribution system would lower state costs, but it simply creates a host of possible problems for the next twenty years or so.

    According to Robert Carlson, chair of the Fairfax pension system board of trustees, a proposal in 2011 to switch all new employees to a 401k-like defined contribution plan was shelved because “this would significantly raise the cost.”  Rather than look for other ways to improve the solvency of VRS, Bill Howell opted to introduce an ALEC-inspired hybrid plan that passed both houses and is sure to be signed by Bob McDonnell.

    Carlson also pointed out, “Any financial benefits from the new [hybrid] plan won’t be realized for 20 years or longer. In fact, creation of the new plan will increase the cost of the DB plan until it winds down.” He went on to say that as more and more state employees and teachers opt for the hybrid system, the cost of running the original VRS system will increase.

    So, this latest Republican “plan” to solve Virginia’s pension woes simply creates a system that can’t possibly save money in the near term, at the same time it shifts onto local government more of the cost of providing a pension system.  

    The state already has changed the system for people hired after July 1, 2010 in order to lower their monthly retirement benefit by extending the time period used to calculate benefits. It brought back the requirement that employees contribute 5% of pretax income to VRS. It increased the age at which a person could get a full pension. That wasn’t enough for them, though. They couldn’t resist using the stock market crash as an excuse to begin the process of eliminating defined benefits at retirement, even though it will cost the system more money to make the change.

    Studies have already proven that Virginia public employees make less in salary than comparable private sector employees, They have had as compensation for that fact better benefits, including a good pension system. The Republicans now in charge can’t stand that, so we have their attacks on benefits. I guess sick days will be next.

    Pretty soon people simply won’t want to teach in Virginia, or fight fires in Virginia, or work for local or state government, if they can get jobs elsewhere.


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