Gov. Bob McDonnell (R) told state employees Thursday that he wants them to increase their contributions to the pension system from 5 percent to 6 percent over the next two years.
He also recommended changing the formula for cost-of -living adjustments and creating a new optional hybrid plan that would give employees a choice to move toward a defined contribution system as opposed to the current defined benefits program.
The impact of the additional employee contribution of 1 percent would be offset in fiscal year 2013 by a proposed performance bonus of up to 3 percent.
If passed, the Virginia Retirement System would average between $160 million to $170 million annually in cost savings and additional contributions. Over the next 21 years, VRS would gain $3.6 billion in contributions or cost savings, all of which could go toward reducing unfunded liabilities.
In the past two years, from 2009 to 2011, the gap between the VRS liabilities and assets on hand to pay such liabilities increased 69 percent from $11.8 billion to $19.9 billion,’’ according to a recent legislative audit.
“The simple truth is our state retirement system just will not work without both sides of the equation, the employer and the employee, contributing more in the years ahead,’’ McDonnell said. “We must act today to ensure our state employees’ retirement accounts are there for them, in full, tomorrow. It’s a promise that must be kept.’’
Last month, McDonnell recommended pumping $2.2 billion into the state retirement system for state and local employees for the next two years – the largest employer contribution to the Virginia Retirement System in history.
McDonnell proposed increasing the amount employees pay into the retirement system last year, but the General Assembly killed the proposal.