Governor examines pension system

By Rosalind S. Helderman
Washington Post Staff Writer
Friday, December 17, 2010

RICHMOND - Virginia Gov. Robert F. McDonnell (R) proposed Thursday that 87,000 state employees begin making annual 5 percent contributions - the first in nearly three decades - to the state's retirement fund as a way to shore up the commonwealth's pension system.

Virginia is one of only four states where government workers make no annual contributions to their retirement fund, the result of a 27-year-old deal in which the state agreed to pick up employee costs in lieu of a pay raise in 1983.

Employee salaries have been frozen for four years because of the economy. To help offset the pain of his pension proposal, McDonnell will request that the General Assembly approve a 3 percent pay raise this year. Employees would see a net reduction in their take-home pay of about 2 percent.

McDonnell will incorporate the policy proposal into a package of budget spending and cuts he will unveil Friday to members of the money committees in the State Senate and House of Delegates.

McDonnell presented the proposal, which he will ask the General Assembly to consider when it convenes in January, as a shared sacrifice between employees and the state to ensure the long-term solvency of the retirement system.

Along with the new employee contribution, McDonnell proposes raising the state's annual contribution to the fund by 2 percent.

"This is a start for fixing a pension system that has been out of whack for years and years and years," McDonnell told reporters. "I will not pass on a broken system to another governor. I will make every effort this year to begin to fix this system."

The changes will affect approximately 130,000 teachers as well as state employees, giving localities the option to ask teachers to pay their 5 percent contribution as well, provided the request is accompanied by a 3 percent pay raise.

Taken together, all of the changes would result in an infusion of $311 million to the pension fund, which has been pressured by shrinking investment returns during the economic downturn. A recent state audit showed the state faces unfunded pension liabilities of $17.6 billion in coming years.

"In order for me to be able to look an employee in the eye and say 'Your money is going to be there when you retire,' these are the kind of changes that have got to be made," McDonnell said.

'Good-faith effort'

McDonnell said he had some good news for employees, too: that he had proposed no furlough days in the coming year and would not ask workers to pay increased health insurance premiums.

He also is recommending that employees be given a one-time bonus of 2 percent next year if the state ends the fiscal year on July 30 with sufficient funds to allow it. If the bonus materialized, employees would not feel the impact of the pension change for another year.

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