General Assembly Update (1/21/11)
Greetings from Richmond. We convened the 2011 session of the General Assembly on Wednesday, January 12. The first few days are generally reserved for reorganization and few bills are actually heard. Nonetheless, there is considerable controversy already brewing at the Capitol. In Gov. McDonnell’s amended budget, he has proposed several million dollars in school funding cuts for Albemarle and Charlottesville, he has yet another proposal to privatize the Alcoholic Beverage Control and, in perhaps the most controversial proposal of all, he has suggested that state employees be forced to contribute a portion of their salary to the state retirement system.
I have signed on to legislation that will restore the school funding cuts to Albemarle and Charlottesville. I have also expressed serious concerns about the governor’s plan to force employees, most of whom have not received a raise in several years, to contribute to the retirement system.
This year, we are confronting a major problem with the Virginia Retirement System (VRS) and its $17.6 billion “unfunded liability,” which is approximately the amount of money appropriated from the General Fund in a year. The term “unfunded liability” describes the ability of a retirement plan to pay the future benefits due to employees if they retired immediately. Since all employees will not retire immediately, sound financial planning does not require that a fund be 100% funded. In fact, economists believe that if a plan is 80% funded, and so long as contributions are continuing to be made into the fund and investments perform adequately, a retirement fund is fine.
The problem with the VRS is that we have consistently underfunded our system while the stock market, where this money is invested, has not brought the returns to which we have become accustomed. In addition, over the last twenty years, the General Assembly has actually met the required actuarial funding request in only three years. If we had made those contributions, our assets would be $5.4 billion more than we have at present, thereby putting less stress on the system. The problem has been exacerbated by the $620 million the General Assembly “borrowed” from the retirement plan to balance the budget last year. I did not support this and voted against the budget, partially due to this provision. We would be in a much better position today had we not taken that money from VRS.
Some economists believe that the problem is even more serious because the actuarial assumptions underpinning the unfunded liability figures are perceived to be too liberal. If that is the case, the fund could experience problems even greater than are now being projected.
One overlooked portion of the governor’s proposal which could have considerable impact on state employees in our area, including faculty at the University of Virginia, is his plan to decrease the amount of state contributions to what is called the “Optional Retirement Plan.” Under this plan, members of ORP will have their state contributions reduced from 10.4% of their salaries to 8.5% of their salaries, and, unlike VRS employees, who will receive a 3% raise to partially offset the change, ORP employees will receive nothing. It is estimated that approximately 25,000 employees around the state are enrolled in this plan, including faculty at the University, VCU, Virginia Tech, George Mason, William and Mary, ODU, and Longwood. At UVA, 3,156 employees are enrolled in ORP compared to 6,210 at VRS, so the stakes are high.
Given the numbers of people involved and the fact that we will not solve this problem overnight, it is important to move deliberately, getting as much information as we can and as much input as possible, before developing a long term strategy to solve the VRS problem. Moving too quickly will be a disservice to employees and interject levels of inequity that are unfair and could create unintended consequences for the future. If you have any suggestions on what we should do to address this problem, I would appreciate hearing from you.
In addition, please take my citizen survey either by returning the mailer you may have received or by taking the survey online. Feel free to pass this message along to friends that may be interested.
It is a pleasure serving you in the General Assembly.
Please feel free to contact my office any time with questions, concerns, or suggestions. My number in Richmond is (804) 698-1057 and you may reach me by email at email@example.com. I look forward to serving you in the coming weeks.