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Posted at 2:00 PM ET, 12/16/2010

McDonnell wants state employees, teachers, to pay into retirement fund

By Rosalind S. Helderman
Rosalind S. Helderman

Virginia Gov. Bob McDonnell (R) Thursday proposed that state employees pick up a larger share of their retirement costs as a way to shore up the Commonwealth's pension system.

Under McDonnell's proposal--which he will ask the General Assembly to consider when it convenes in January--about 87,000 employees would be asked to pay 5 percent of their salaries as a contribution to their retirement costs. The proposal would reverse a 27-year deal with employees in which they have paid nothing for their retirement. The state agreed to take on employees' 5 percent yearly contribution in 1983 as part of a deal worked out when a recession forced several years of pay freezes for employees.

The change would affect existing employees. The General Assembly already agreed this year to ask all those hired after July 1, 2010 to pay their 5 percent contribution.

To offset the cost of the change to employees, McDonnell will also propose a 3 percent pay raise this year. That would mean the pension adjustment would result in a net reduction in pay of 2 percent for state employees, who have already seen their salaries frozen for the last four years.

The changes will affect approximately 130,000 teachers as well as state employees, giving localties the option to ask teachers to pay their 5 percent contribution as well, provided the request is accompanied by a 3 percent pay raise.

All of the changes taken together would result in an infusion of $311 million to the pension fund, which has been pressured by dropping investment returns during the economic downturn. Projections show the fund faces unfunded liabilities of $17.6 billion in coming years.

"I know reforms we are proposing today will not be easy, however, given our enormous unfunded liabilities, I will not pass on a broken state pension system to another governor," McDonnell said.

Staff for the governor indicate the changes would not affect repayment of $620 million borrowed from the retirement system this year to close a budget shortfall and fund government services. The General Assembly agreed to repay that loan over 10 years, starting in 2013.

Employees and their associations could lobby hard against the proposal; to blunt its impact a bit more, he is also recommending that employees be given a one-time bonus of 2 percent next year if the state ends the fiscal year on July 30 with sufficient funds to allow it. If the bonus materialized, employees would not feel the impact of the pension change for another year.

By Rosalind S. Helderman  | December 16, 2010; 2:00 PM ET
Categories:  General Assembly 2011, House of Delegates, Robert F. McDonnell, Rosalind Helderman, State Senate  
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