The Washington Post

New Va. public employee retirement program could cost millions to implement, think-tank report says

A measure that creates a mandatory hybrid retirement program for public employees, signed into law by Gov. Bob McDonnell (R) this week, could cost Virginia millions of dollars to implement, according to an analysis released Wednesday by the Commonwealth Institute for Fiscal Analysis.

The study by the nonprofit think tank, “Known Unknowns”, looked at the costs of developing the information technology and other related systems in states with similar hybrid retirement plans -- Utah, Oregon and Michigan -- and used those to estimate the potential impact in Virginia. With almost 340,000 participants in Virginia, the potential costs could be between $5 million and $25 million, the report found.

“Even though the state maintained that costs could not be ascertained at the time the legislation was proposed, simple analysis around the experience of other states gives us an idea of how significant the costs could be,” says Michael Cassidy, institute president.

The Virginia plan establishes lower benefits for those who are hired after Jan. 1, 2014. Their retirement benefits will be based on an average salary for the last five years of service, rather than the last three, as is the case for 70 percent of current employees. They will also get a lower cost-of-living adjustment to their benefits.

But supporters say the plan is expected to improve the state’s ability to recruit employees who intend to have shorter tenures, provide more stability to government and reduce future obligations.

“Of course [the Virginia Retirement System] will experience some system development costs in this transition,’’ McDonnell spokesman Jeff Caldwell said.

“The exact amount of those costs are still unknown at this time, but they will certainly pale in comparison to the tremendous savings these reforms will produce. The fiscal impact statement...estimates a savings over the next 20 years of $3.6 billion. Savings of that magnitude will dwarf the costs that will be accrued during the transition.’’



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