With pension costs eating up a growing proportion of Fairfax County expenses, officials are weighing whether to phase out a unique program that pays a small additional stipend to employees who keep working after reaching retirement age.
Board of Supervisors Chairman Sharon Bulova (D) said the county also may explore raising the minimum retirement age for new employees to 60, after boosting it from 50 to 55 four years ago.
“I don’t see us going back on our commitment to employees who came to the county with the expectation that would be one of their benefits, but we are looking at whether or not we should do something different for new employees,” Bulova said.
The possible changes to the county’s retirement system are in the early phases of discussion, with budget office employees studying potential savings. Local unions have vowed to oppose any changes.
Since 2010, pension expenses in Virginia’s largest jurisdiction have nearly doubled to $219.5 million at a time when the stubbornly lukewarm local economy has kept revenue down. Nationwide, government pension-fund costs have risen as well, the result of a growing population of retirees who are living longer, as well as weak investment returns on Wall Street after the 2008 Great Recession.
In the country’s 50 largest local governments — including Fairfax County — pension costs totaled $17.6 billion in fiscal 2015, up 137 percent from 2005, according to an October report by Moody’s Investors Service. Analysts with the Wall Street ratings agency say costs are likely to continue rising over the next two years in what is expected to be a volatile investment market.
Fairfax’s three pension funds cover about 31,000 current and former general county employees, police officers, firefighters and other uniformed personnel — up from 27,000 in 2008.
Last year, the police pension fund grew by 1 percent, after increasing 20.8 percent in 2010; the fund for general county employees shrank by 0.4 percent, after a 25.2 percent return six years ago; and the fund for firefighters and other uniformed personnel shrank by 0.8 percent, after a 15.5 percent increase in 2010.
As a result, pension contributions the county makes to meet its retirement plan obligations to employees are taking up a larger share of the general-fund budget: 6.3 percent of overall expenditures last year, compared with 4 percent in 2010.
“The reality of 2008 and the impact of the market can’t be understated,” said Joseph Mondoro, the county’s budget director. “We’re still recovering from that.”
In 2013, county supervisors made an effort to save money by adjusting pension-eligibility requirements for new employees. Currently, most county workers can’t retire until they are at least 55 and their age and years working for the county add up to at least 85 years. Police and firefighters can retire at age 55 or with 25 years of service. The changes, which included limiting the amount of unused sick leave that could go toward calculating retirement eligibility, were projected to save $11.5 million by 2027.
But with pension costs still growing and the county facing a projected $83 million budget shortfall after years of trimming services and spending, community groups are urging the Board of Supervisors to do more.
The prime target right now is a retirement benefit known as the Pre-Social Security Supplement, which last year paid about $40 million to 2,900 employees who continued working after becoming eligible to retire. The perk — adopted in the early 1970s to lure and keep the best workers in what was then a rapidly growing county — is the only one of its kind in the region.
“This is something that is not left nor right nor any kind of partisan issue,” said Jeff Barnett, president of the McLean Citizens Association, which recently publicized its own calculations of the county’s steadily rising pension costs. “It’s just simple mathematics. The status quo does not seem to us to be practical.”
Several supervisors agree.
“I definitely think that, going forward for new employees, it’s an extra we can’t afford,” Supervisor John Cook (R-Braddock) said of the Pre-Social Security Supplement.
Cook also argued for changing the retirement eligibility requirements for new employees so their age and years with the county government have to add up to 90 years, a standard he said most county employees already meet.
Supervisor Pat Herrity (R-Springfield) called the supplement an unnecessary drain on county resources that keeps Fairfax from spending money needed for schools, parks and employee wages. He also has been pushing the county to adopt a “hybrid” pension system that includes a less costly 401(k) retirement plan option — a choice increasingly embraced by private employers.
“You can’t say you’re fiscally responsible if you’re not addressing this basic issue,” Herrity said.
Fire Department Capt. John Niemiec, president of the county’s local union for firefighters and paramedics, said eliminating the Pre-Social Security Supplement would keep good rescue workers from staying on the job longer and steer qualified applicants into other jurisdictions.
“There is no way our union is going to sit idle and let them start taking away our benefits,” said Niemiec, adding that county employees already have endured several years without significant pay raises. “Enough is enough.”
Randy Creller, who chairs the county’s Employee Advisory Council, said carving into pension funds, even for future employees, would hurt morale. “If you start tampering with that, people start making decisions over whether to stay or not stay,” he said.
Yet with tax revenue failing to keep up with increasing demand for government services and Fairfax supervisors unwilling to raise property taxes after increasing them last year by an average $304 per household, the county is faced with hard spending choices.
That combination requires strategic thinking, said Supervisor Penelope A. Gross (D-Mason), who chairs the committee overseeing county pensions. She has not yet taken a position on what should be done about the escalating costs.
“We’ve seen that on all the investments that the county has, millions of dollars in interest income isn’t there anymore, which has made our lives more difficult,” Gross said. “It’s not bad news. It’s just the reality.”