The Virginian-Pilot
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RICHMOND
Del. Chris Jones has abandoned his proposal to replace Virginia state employees' defined-benefit pension plan with a 401(k)-style plan.
The Suffolk Republican had proposed phasing out the Virginia Retirement System's current pension model, which promises a specified payout amount at retirement, in favor of a defined-contribution plan similar to a 401(k) for new state, local and public school employees. Such a system would not guarantee any payout amount.
The proposal produced an outcry from public employee groups, prompting Jones to back off.
On Wednesday, a subcommittee of the House Appropriations Committee endorsed an alternative proposal from Del. Lacey Putney, I-Bedford, that would set up an optional 401(k)-style plan.
Putney's measure, HB2410, would leave the current pension plan in place for those employees - both current workers and new hires - who prefer it.
The optional defined-contribution plan, which would take effect Jan. 1, 2012, would require employees who choose it to contribute at least 5 percent of their salary toward their retirement. The state would contribute a matching amount.
Employees could make an additional voluntary contribution up to 3.5 percent, which also would be matched by the state.
Representatives of the Virginia State Police Association, the Virginia Governmental Employees Association and the Virginia Fire Chiefs Association all endorsed the Putney measure. The Virginia Education Association, which represents teachers, opposed it.
Six states now offer an optional 401(k)-style plan. Two states, Alaska and Michigan, have mandatory plans such as Jones proposed.
Jones' proposal was prompted by a projected $17.6 billion shortfall in the state pension program.
Gov. Bob McDonnell has proposed requiring all state employees to contribute 5 percent of their pay into the pension system. That would be partially offset by a 3 percent pay raise.
The state now picks up the entire tab for employees hired before July 1, 2010.
The state pension system covers more than 339,500 government workers, including teachers, judges, law enforcement personnel, and state and local public employees.
The cities of Chesapeake, Portsmouth, Suffolk and Virginia Beach participate in the system. Norfolk has a separate retirement plan, except for constitutional offices.
No one on the subcommittee expressed any opposition to Putney's plan. There seemed to be a consensus that it satisfies many who prefer the current system and those who want an alternative.
"I think we've got the best of both worlds here," said Del. Bob Tata, R-Virginia Beach.
The Putney proposal, if adopted by the full Appropriations Committee, will still need approval by the full House and the Senate.
Its prospects in the Senate seem uncertain at best.
The Senate Finance Committee killed two bills Wednesday from Sen. John Watkins, R-Powhatan, designed to set up an optional 401(k)-style plan similar to the one proposed by Putney.
One of the measures, SB1008, also would have required state workers who remain in the current pension system to contribute
5 percent of their salary into the plan. Those payments would be phased in over five years, with an offsetting 1 percent annual raise over that period of time. Local governments would have the option to continue making contributions on behalf of employees.
Representatives of several state employee groups - state and local police, and other public workers - expressed concerns about Watkins' plan.
Watkins urged his colleagues not to delay action on the looming pension funding problem.
"At some point, we're going to have to swallow this toad," he said. "It's not getting any tastier. As a matter of fact, it's getting bigger."
Pilot writer Julian Walker contributed to this report.
Bill Sizemore, (804) 697-1560, bill.sizemore@pilotonline.com
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Ride the bubble till it bursts, then
Unfunded, defined benefit pensions are the next big bubble due to burst, probably later in Virginia than elsewhere, but here too sooner or later.
Like Social Security, defined benefit plans rely, at least in part, on future contributions to pay benefits. And, like Social Security, they are mathematically unsustainable in the long term.
Neither wishing nor whining will make the math go away.
Myth: Social Security is
Myth: Social Security is going broke.
Reality: There is no Social Security crisis. By 2023, Social Security will have a $4.3 trillion surplus (yes, trillion with a 'T'). It can pay out all scheduled benefits for the next quarter-century with no changes whatsoever.1 After 2037, it'll still be able to pay out 75% of scheduled benefits--and again, that's without any changes. The program started preparing for the Baby Boomers retirement decades ago.2 Anyone who insists Social Security is broke probably wants to break it themselves.
Right now taxes are only paid on the first 106,000 of an individuals income. Raise this amount slightly and social security is fully funded. Bill Gates and Warren Buffet said raising their taxes is a fair solutio
The Reality....
The ideal would be for any public employee in VRS not to depend soley on VRS for their retirement. In Va, public employees also receive soc security (in some states, teachers don't receive even that).
But...also, if possible, have other investments.
The problem is, & main reason VRS is so important, many public employees are barely making a living wage. They can barely afford the basics.
Teacher assistants in VB, @ 38 years, are not making $26,000. That is the reality...and shameful.
In the VBCPS there are people who are writing checks at the end of the year to the school system because their salary doesn't cover their share of health care.
If I retired today w/ 25 years in VRS, I would receive $1400/mo. And I'm a teacher.
Even without a union....
$1400 a month is better than most non-union workers can expect out of their 401K savings plans. At least it is a guaraunteed benefit. $1400 a month for 15 years of retirement is $252,000 dollars. I don't know many average salaried non union worker who will have that much in their savings plans before they retire. What happens if they live 20 or 25 years after retirement they will be broke or maybe Walmart greeters. No offense to the Walmart Greeters trying to make a buck.
Teachers are Contractual....Not Salaried Employees
One person saying, "Is that all." Another saying, it is "better than most non-union workers."
So we can't win...can we.
We are trying to compare apples to oranges.
What is to be done?
Yes, for at least the last decade, the income of the middle class has been shrinking as tax policy benefits the wealthy. The broad middle class is being squeezed in both income and benefits. That said, what is to be done in regard to VRS? Private employers/employees went through this period as well and managed the shift from defined benefit to defined contribution as a matter of corporate survival. For teachers to place their faith in Legislators to fix VRS is putting them more into jeopardy. Better to empower their representatives to work out the best deal possible. Sounds as if currently they are against the very change that in the long run will be beneficial.
$1400 a month?
Is that all? I guarantee that I have never made as much as you, but have faithfully contributed to my 401k and I would have a lot more money coming in than that.
Why not let the current employees keep the VRS and all new employees switch to the 401k or 403B system? That is how they did it at the post office and many that were able to keep the FERS elected to switch over to a 401k because the benefits would be so much more when they retire.
My guess...
.... is I don't make as much as you think.
If that is all I'll receive with mandatory participation...what do you expect I would be able to afford with voluntary contribution?
And then there was my annuity that is just starting to recover after the big recession destroyed most pension funds and 401k's. Had I retired at time, I would have less than I contributed.
Only if you took it all out at the worst time
Even in this last, long and deep recession, you would not have lost all that much so long as you were properly diversified for your age and did not panic and take it all out at once.
If you were in, or near retirement, you should have had enough in bonds, which held face value during the recession, to get by on until the equity market recovered.
No one, other than fools, pulls all his equities in the depth of a recession.
Mike does have a valid point
The employees should control their own pension plans, but the Commonwealth shouldn't be allow to shrike their obligations. Bring the existing pension plan account current with all payments and interest that should have accrued. Bring all the current employees wages up to the compensation levels that is fair to the existing market. Then rollover the current state pension plan to a more portable plan that the state employees own and control. Then that may be fair and more in line with the private sector. Although, I highly doubt the Commonwealth can afford to do that, considering it has be derelict in paying its past obligations. Well, I can say they learned from the best, the Fed,in just keep writing more IOUs.