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Pension fund pain spreading to public sector employees
Monday, April 2, 2012
By THE ASSOCIATED PRESS -
RICHMOND — The allure of a government job never was great pay. At least it wasn’t for Fairfax County firefighter Mike Mohler.
The hook for hundreds of thousands of Virginians who work for state or local governments was the promise of good benefits and pension packages that were usually superior to the private sector. Private sector benefits have slid further since the 2008 economic collapse.
Now some state and local government employees will feel the same pain thanks to an underfunded Virginia Retirement System combined with a remedy for it that was hastily cobbled together by the General Assembly.
“We had no idea what was in that bill,” said Del. Jennifer McClellan, D-Richmond, and an opponent of the legislation. Legislators received the conference report on the bill just seven minutes before floor debate on it began, she said. “And 30 minutes later, it was passed.”
Teachers, firefighters, police and others across the state are angry over it, demanding that Gov. Bob McDonnell veto or amend the legislation. And they’re speaking out.
“We are not greedy. We did not enter public service to get rich. All of us make a modest wage,” said Mohler, the president of the Virginia Professional Firefighters. He appeared at a news conference last week to appeal for McDonnell to intervene in the legislation that was rushed to passage in the dying hours of the 2012 General Assembly on March 10.
Pay for classified state employees last year ranged from a low of $15,371 for unskilled workers such as groundskeepers to nearly $248,000 for staff physicians at state institutions, according to the Department of Human Resource Management. Average annual pay is $43,703.
On average, the DHRM report shows, state salaries are 16.6 percent lower than private industry compensation for comparable jobs. A private sector architect, for example, makes 23 percent more than one employed by the state. A state government maintenance electrician earns about 22 percent less, and a lawyer working for the commonwealth earns nearly 92 percent less than an attorney in private practice.
Nobody disputes that the Virginia Retirement System’s trust fund is critically underfunded. The most recent gauge of its unfunded liability is $24 billion and growing. McDonnell warns that the fund is risking insolvency unless the drain is reversed. The system covers 160,000 retirees and has about 340,000 active members in fiscal year 2011.
The dispute is over who’s to blame.
The trust fund’s investments took a beating in the stock market collapses of 2008 through 2009. Since the 1990s, the legislature also has contributed to the VRS system at a rate lower than what’s recommended by the retirement system’s board of trustees. And the legislature and the McDonnell administration didn’t help matters by deferring $620 million in VRS contributions as a one-time action to tide over a struggling state budget two years ago.
One measure passed as the regular session adjourned last month requires teachers and other local government employees who are covered by a VRS plan to pay 5 percent of their wages into the pension fund. In turn, city, county and town governments would boost their pay by 5 percent to cover the contribution.
Mayors, boards of supervisors and their lobbyists were shocked at monstrous and abrupt cost increases that could take effect July 1. Unless McDonnell amends the measure to allow for the costs to be phased in, real estate tax rates — the primary source of local revenue — are likely to skyrocket this year.
As of Friday, the governor still was considering his options. Lawmakers return to Richmond to consider his amendments and vetoes on April 18.
Another measure that has provoked the ire of the Virginia Education Association, which lobbies for more than 60,000 public school teachers, is a measure that scales back retirement benefits for public employees with less than five years in the system. New hires starting in July 2014 also would be put into a hybrid pension plan that melds traditional defined benefits with a defined contribution plan such as a 401(k), which employees direct and which can gain or lose value based on market fluctuations.
A future teacher making the minimum contribution to the hybrid plan would realize a retirement benefit about one-third smaller than current plans yield, said VEA president Kitty Boitnott. It would take a maximum contribution, or about 9 percent, of current average teacher pay just to come within $1,000 of the $28,333 annual retirement benefit under existing plans, she said.
“I can assure you, those teachers do not have the cushion to contribute that much of their paycheck toward their retirement,” Boitnott said.
The VRS reforms are not fair, said retired teacher Bea Morris. VEA lobbyist Robley Jones called it “a vote that many of them will live to regret.”
Michael Cassidy, president of the progressive-oriented Commonwealth Institute for Fiscal Analysis, said poorer benefits put state government in “a race to the bottom,” and they will adversely reverberate throughout the state’s economy.