All Virginia state employees will contribute part of their salaries to the state’s retirement system for the first time since 1983, but Gov. Bob McDonnell says the General Assembly did not do enough during the 2011 session to address the depleted pension fund, which faces almost $18 billion in unfunded liabilities. Starting in June, all state employees — but not teachers or local government workers — will be required to kick in 5 percent of their salaries to the Virginia Retirement System. Previously, only employees hired after July 1, 2010, had to do so.
The move and other measures are expected to pump about $200 million into the system.
The plan also gives the workers a 5 percent raise and will cost the state $15.1 million.
McDonnell, though, had wanted a 5 percent contribution to be offset by a 3 percent raise, and options for localities to do the same for older employees. He said his plan would have pumped $300 million into the system in fiscal 2012.
“I didn’t think we accomplished nearly enough on the Virginia Retirement System,” he said. “They did something, but in terms of moving the ball forward significantly to establish some employee participation or to look at at least an optional defined contribution, they didn’t get it done.”
Some localities had wanted flexibility to offer employees a 401(k)-style plan, according to Mary Jo Fields, director of research for the Virginia Municipal League. Such a proposal had been included in legislation that did not make it out of committee in the Senate.
“If you do a straight 5-for-5, it ends up costing the employer and the employee money,” she said. “Who benefits is the federal government. … [Employees’] salary will go up, but their taxes will go up, too.”
The state will also provide the pension system
$41.7 million in general fund money to eliminate some of the payments it deferred last year, and increase its contribution rates for the state employees’ and teachers’ retirement plans in an effort to shore up the system.
