McDonnell asks state workers to pay 5 percent for pensions

RICHMOND

Changes proposed to the state pension system by Gov. Bob McDonnell on Thursday would require government workers to contribute money toward their retirements as part of a strategy to keep the system financially sound.

In the governor's plan, thousands of government employees at agencies across the state - possibly including local school teachers - would be called on to contribute 5 percent of their pre tax salaries to their pensions starting next year. Before 2010, Virginia covered the state and employee share of retirement contributions as part of a deal with workers dating to 1983, when the state couldn't fund pay raises.

That changed this year when the General Assembly amended state law to require workers hired after July 1 to pay toward their pensions. McDonnell's new plan would hold old and new employees to the same standard going forward.

The announcement came a day before the governor plans to release his full budget amendments.

McDonnell said the state also would boost its pension contribution for employees by 2 percent and look to offset the new cost to workers by building a 3 percent pay raise into the budget for those employed before July 1 of this year.

Still, the net effect would be a 2 percent reduction in take-home pay for roughly 87,000 employees. Eligible Virginia employees received a 3 percent bonus this month, but they have gone without raises for several years.

The loss of pay could be temporarily mitigated by a 2 percent bonus McDonnell has proposed for workers next year; it is contingent on the state producing sufficient savings to fund it.

Those ideas weren't welcomed by the Virginia Governmental Employees Association on Thursday.

"We have deep concerns about his proposal to have current state employees begin contributing 5 percent of their salary to the retirement system," said VGEA executive director R. Ronald Jordan. "While the governor is attempting to keep employee salaries whole in the proposal, he relies on a potential pay bonus using year-end savings in the state budget to do so. The net affect is that without the bonus, state employees could face a pay cut amounting to a little over 2 percent."

McDonnell, who previously expressed opposition to changing the contributions, said adjustments are necessary to address a projected shortfall in the pension fund, which totals $17.6 billion, according to a recent report by the Joint Legislative Audit and Review Commission.

"If I don't make these changes... we're going to have a broken system and the problems are only going to get worse," he said. "And so rather than put off for some other governor to fix this, I've looked the employees in the eyes, and been honest and said, 'There's no way this is going to get fixed without the employee paying something and the employer, the commonwealth, paying more.' "

Earlier this year, Virginia withheld a roughly $620 million investment to its pension fund to help balance the state budget. The state is scheduled to repay that obligation over 10 years.

In addition to state workers, local governments and some of their employees could feel the financial pinch of the governor's proposed changes.

As many as 130,000 public school teachers would receive a 2 percent bump in employer contribution to their pensions, a cost that would be split between Virginia and its localities. The local share of that is nearly $105 million.

Overall, McDonnell's revisions would pump about $311 million into the pension fund next year.

Changes made to the retirement system this year also gave local governments and school systems the ability to require new hires to contribute the 5 percent employee share, though few around the state did, according to Virginia Retirement System data.

In Hampton Roads, however, several cities exercised that authority.

Chesapeake, Portsmouth, Suffolk and Virginia Beach required new public employees to cover their share of pension costs, but the corresponding school divisions in those cities did not, according to the Virginia Retirement System.

Each of those localities has selected VRS as its retirement plan, while many of Norfolk's employees are part of a separate retirement system, the official added.

The governor's plan would permit localities to require employees and teachers to pay 5 percent toward their pensions, but only if the local government gives them a raise of at least 3 percent. All those costs would be borne by local governments.

If governments adopted that plan, local employees and teachers could lose some of their earnings, said Robley Jones of the Virginia Education Association, which recently asked the state to fund 3 percent raises for its members.

"Teachers get the short end of the stick, comparatively," Jones said.

School officials in Chesapeake, Norfolk and Virginia Beach said they are waiting to see firm numbers from the state before commenting on McDonnell's proposal.

But the prospect of making employees pay more toward their retirements in these economic times left Norfolk Sheriff Bob McCabe miffed.

"Our people haven't had a raise for three years, and are now being asked to take a 5 percent pay cut," he said. "Most of our people are making less than $30,000 per year. Honestly, I don't know how some of them are going to make it."

Pilot writers Aaron Applegate, Elisabeth Hulette, Harry Minium and Steven Vegh contributed to this report.

Julian Walker, (804) 697-1564, julian.walker@pilotonline.com