December 20, 2011 — State lawmakers must focus on the long-term health of the Virginia Retirement System both during the coming General Assembly session and for years to come, area legislators said Tuesday during a forum at the University of Virginia.
State Sen. Creigh Deeds, D-Bath, and Sen.-elect Bryce Reeves, R-Fredericksburg, joined Delegates Robert Bell, R-Albemarle, and and David Toscano, D-Charlottesville, in a packed Rotunda Dome Room for the forum, which focused on the upcoming legislative session.
The legislators discussed issues ranging from the state ban on uranium mining to Gov. Robert F. McDonnell's proposed $84.9 billion biannual budget, but all agreed that mending the state's pension plan is a pressing concern.
"Underfunding VRS has been occurring each of the years I've been in the General Assembly," said Deeds, who was first elected in 1991. "Whether the Democrats have been in charge or the Republicans, everyone has done it. The question is now, how do we fix it?"
The governor's proposed budget includes a $2.21 billion infusion for the VRS, which would be the largest employer contribution in state history. Though the system is set to meet its obligations to current retirees, it has an estimated $20 billion long-term shortfall, Bell said. Fixing the problem in one year would require the entirety of the state's estimated annual general fund, which finances everything from road construction to the state police, he said.
"I think we're going to find over the next five or 10 years that this is the single biggest issue we address," said Bell, who completed both his undergraduate studies and law degree at U.Va. "If we don't find the money, it will inevitably crowd out all the other priorities that we have."
Reeves, a graduate of U.Va.'s Sorensen Political Leaders Program, said that while the state must honor promises to its employees, younger state employees don't expect to see benefits from a defined benefit plan such as the VRS.
"For those new folks coming in the system, the hard reality is we can no longer afford to pay it on the backs of our kids and grandkids," he said.
Both Deeds and Toscano, a 1986 Law School graduate, urged caution before changing the VRS into a market-based system.
Deeds said the current dilemma stems from years of raiding the VRS to fund other initiatives. "One could argue that if VRS had been funded at the level the VRS trustees had recommended every year, we wouldn't have the problem we have today," he said.
Deeds said he'd prefer to keep the system as a defined benefit plan – rather than have the state contribute to market-based accounts – but said if it's found not to be economically viable, he'd prefer that employees be able to choose which type of plan to subscribe to.
Toscano said VRS funding is "a huge problem," and that lawmakers must first honor existing commitments, even in tough economic times. Even if the system could be immediately changed to allow participants to opt out, there would still be huge costs involved, he said.
"Some people would like to make you believe that you could wave a magic wand and convert the system overnight. Well, you can't really do that unless you dismantle the entire system," figure out what each contributor is owed and pay them out, he said.
"That would create a revolution with state employees," Toscano said.
Bell, who said he's supported many unsuccessful attempts to create an opt-out choice, said state employees in the VRS could be broken into roughly three groups: those who are retired or close to retiring and could be covered by the current system; those between 35 and 55 who have been paying into the system, but won't get their full benefits unless the system is repaired; and younger employees who pay in with no expectation of seeing a return. Fixing the pension system might require different solutions for each of those cohorts, he said.
"You're trying to be fair in your commitment to all of them," he said.
While introducing the legislators, U.Va. President Teresa A. Sullivan pointed out that the governor's proposed budget includes an additional $200 million over two years for state higher education, a portion of which would go to U.Va. It also includes a 3 percent bonus for state employees in December 2012, as long as state institutions are able to save twice that amount.
"I want to emphasize that we're very grateful for the governor's support for higher education and for his investment in it, because these funds will help us to achieve our mission," Sullivan said. "But we also need to understand the broad context and take a realistic view of the financial situation we face over the next two years."