RICHMOND — A massive transportation funding bill. Blocking Medicaid expansion.
House Speaker William J. Howell already has contenders for his personal legacy file.
But as he approaches three decades in the General Assembly, the powerful Stafford County Republican wants Virginia to change workers’ retirement benefits in the hopes of adding the commonwealth to the short list of states with zero pension-plan debt.
“This would be kind of a capstone of a distinguished career of service,” said Mark J. Rozell, dean of the School of Policy, Government and International Affairs at George Mason University. “He’s a fiscally conservative guy. He’s very proud of his record of managing the state budget responsibly.”
But changing the state’s retirement system is unlikely to happen easily, with many lawmakers still smarting from a round of revisions made a few years ago.
In 2012, the legislature adopted a plan that forced new hires to pay more into their retirement plans but offered them a raise to soften the blow. Now Howell wants to create a commission in the coming session to study the possibility of relying more heavily on a 401(k)-style defined-contribution plan, as is common in the private sector.
Such a change would probably cost workers and the state more in the short term, but Howell is betting that it would put Virginia’s retirement funds on a long-term path to fiscal solvency.
To that end, he’s gearing up for what could be his most complicated fight yet — and one that probably wouldn’t yield tangible fiscal results for years.
“I think it’s better for the employee and it’s better for the state,” he said in an interview. “We need to really take a hard look at our retirement plans and decide which way we want to go, what changes do we want to make.”
While Howell said a second round of reform is fraught enough to warrant study, he doesn’t think the issue needs to wait for a Republican governorship to gain traction.
Despite his frosty relations with Gov. Terry McAuliffe (D) on a host of issues, including whether the state should accept federal dollars to insure 400,000 Virginians through the Affordable Care Act, Howell said the governor should be on board with pension reform.
“He says he’s a business guy,” he said. “He should understand this as well as anybody else. He sure doesn’t want to see our bond rating jeopardized in any way.”
Until there’s a concrete proposal, McAuliffe is remaining mum.
“The governor shares the goal of ensuring the solvency and long-term sustainability of the Virginia retirement system and is certainly open to policy conversation about the best way to do that,” said McAuliffe spokesman Brian Coy.
The issue doesn’t fall neatly along partisan lines, but Republicans such as Howell will have some convincing to do.
Del. Jennifer L. McClellan (D-Richmond), who represents many state employees, said it’s too soon to tinker with the plans again.
“Last go-around they were understandably nervous because they hadn’t had a raise and they worried about the impact reform would have on their retirement plans, which is a huge part of the compensation package we provide,” she said.
State Sen. John C. Watkins (R-Powhatan), who played a leading role in the 2012 changes, shared her concerns about moving too quickly.
“I think you’re going to get a lot of pushback from state employees and teachers unless something is done commensurately to raise compensation levels,” said Watkins, who did not seek reelection this year.
Under Gov. Robert F. McDonnell (R), the General Assembly passed a package of changes that meant new hires would have to contribute 5 percent of their salaries to a “hybrid” plan, which combines the traditional defined-benefit package with a defined-contribution plan.
Virginia is one of 10 states with hybrid plans. So far none of those have been able to erase their pension debt completely, but Oregon and Tennessee are close, according to Greg Mennis, director of public-sector retirement systems at the Pew Charitable Trusts.
Pension plans across the country are only 72 percent funded on average, and Virginia is slightly below that. But, Mennis said, as recently as 2002 most states were at 100 percent. That figure came down following volatile financial markets and the Great Recession.
Virginia tried to fix its problem, but under the current plan workers may not be saving enough for retirement, said Mennis, who gave members of the state House Appropriations Committee a primer on the subject this month.
Still, Howell and other proponents of defined-contribution plans say they’re portable and make more sense in an age when workers tend to hop from job to job.
“The magic of the stock market,” he said. “It goes up and down, but over the long term it always seems to go up — [that] tells me that I kind of like the defined-contribution plan better than the defined-benefit plan. But that’s just my opinion.”
S. Chris Jones (R-Suffolk), chairman of the Appropriations Committee, said he also favors more reliance on a defined-contribution plan. But for now, he’s committed to having Virginia make full pension payments, which would chip away at the current $21 billion debt on plans worth $68 billion. “That would speak volumes to our commitment to addressing the unfunded liability,” he said.
Groups representing workers like this idea, but they are stopping short of joining Howell’s call for what they see as watered-down benefits plans.
R. Ronald Jordan, executive director of the Virginia Governmental Employees Association, which represents about 20 percent of state employees, said lawmakers shouldn’t “make changes in retirement without making substantial changes in compensation.”
Howell says it’s too early to talk about specifics.
The 72-year-old lawyer and grandfather with a shock of white hair also dismisses speculation about retirement and legacies, having just fought off a challenge from the right from a former political protege.
“I take everything a day at a time,” he said. “I’m just starting. I’ve just won reelection, so don’t be talking to me about retiring.”
Howell hasn’t proposed touching teachers’ pensions — yet — but Robley Jones, a lobbyist for the Virginia Education Association, noted that employees aren’t the ones who got Virginia into debt in the first place.
“The General Assembly dug the hole,” he said. “[Teachers], they’re the ones being punished for it.”