A proposal from Gov. Bob McDonnell to fix the state’s retirement program will reduce real income of state employees — including all Virginia Tech employees — by 2 percent.
If the motion is passed by Virginia’s General Assembly, workers who draw from the Virginia Retirement System will contribute 5 percent of their salary and will receive a 3 percent base salary raise for a net loss of 2 percent in earnings.
Since 1983, the state has paid both “employee” and “employer” shares toward the Virginia Retirement System and the Optional Retirement Plan, resulting in an unfunded liability of $17.6 billion, according to a recent study by the Joint Legislative Audit and Review Commission.
“(The governor) feels very strongly that we can’t just ignore this problem or leave it for a future administration to handle; he would like to address it during his term,” said Jeff Caldwell, the governor’s press secretary.
“So by doing that, the governor has proposed making these changes to have employees contribute to the VRS system in an effort to address this.”
Those who are a part of the Optional Retirement Plan will face a similar loss through different means. The state will reduce its portion by 1.9 percent, and employees will have to make up the difference through their own paychecks if they want to draw the same funds from the pension at retirement.
“The difference is the VRS employee is losing out of current salary whereas the ORP employee is losing out of the contribution paid to his or her retirement account, but the current salary is not affected,” said Larry Hincker, university spokesman.
While the ORP employee does not have to directly contribute, he or she will have 1.9 percent less retirement funding, he said.
Another key difference in the two retirement plans is the means of drawing money from the pension.
When employees sign up for the VRS, they are guaranteed a certain amount of money from the system. ORP employees do not have a set figure guarantee.
The plan is similar to an individual retirement account in the sense that it is unknown how much money will be in the account at retirement. The amount of money depends on how it is invested, and a 1.9 percent change in the initial payments can have huge ramifications.
A version of this article appeared in the Feb 1 issue of the Collegiate Times.
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While I am glad to see an article about VRS it is an inaccurate description of the proposal. Firstly, the VRS short fall of 17.5 billion is due to several factors none of which has to do with how the current contribution of 5% for employees. It is a result of the financial crash, but more importantly the General Assembly underfunded the system in 16 of the last 20 years, resulting in a loss of 5.4 billion to the system. The proposal as it stands shifts the cost of state government onto the backs of state employees and does very little to address the funding shortfall. The Govenor would like everyone to believe that 5%-5% is a solution, but it changes absolutely nothing in terms of funding for VRS. He is just shifting the cost to employees. The system is not in crisis. And the Governor has not proposed a solution. Del. Englin has put in a bill to mandate that the General Assembly put the employer share in as it should anyway.
Sincerely,
Suzanne J. Keller
Richmond, Virginia
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Headline should read Irks "SOME" employees. If this plan will insure the solvency of the VRS for my future, I have no problem contributing to it.
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The era of defined benefit pensions is over in the private sector because it's time for people to take personal responsibility for their retirement. In essence, these types of plans force the employer, in this case the state, to eat the negative effects of market downturns since they have guaranteed their retirees a certain retirement income. Great deal, right? Sure, except that when the market tanks, the money lost in the retirement fund has to be replenished with taxes or higher contributions by current employees - at exactly the time when nobody can afford it. Now if only they would do away with VRS altogether.
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There are two groups of employees, those who are members of VRS (a defined-benefit plan) and those who are members of ORP (a defined-contribution plan).
ORP members receive 90.57% of their compensation as salary, the remaining 9.43% are paid by the state into a 403(b) account maintained by TIAA-CREF. The state does not carry any market-related risks on those accounts; this risk is solely the employees. The governor proposes to cut the compensation of ORP faculty members by 1.9%. There is no relationship to the health of the state's retirement system because these employees are not part of the state's retirement system at all.
Since you need to work at least 7 years to be vested in VRS, most tenure-track faculty (not knowing if they'll make tenure when they are hired) opt for the ORP plan instead of the VRS plan.
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I am aware of that. I was commenting on doing away with VRS.
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A correct description of the issue is found here
http://www.roanoke.com/news/nrv/wb/274618
Michelle, please inform yourself and follow up with a corrected description.
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Suzanne has more of the details right. Instead of a pay raise in 1983, the state took over paying in the employee share of the payment into VRS -- the result was employees at that time saw an increase in take-home pay. The failure over the years was that the state didn't pay what it should have paid for each employee, both the employer and employee share, into VRS. By shortchanging the system (with a promise of "we'll catch up later"), it has put it into the bind it is in now. While it is one thing to expect employees to pay their fair share, the timing of this move and the weasel way of doing by the governor is pretty sorry -- "I'm giving your a 3% raise! (but I'm not really giving it to you, I'm paying it to VRS, along with taking another 2% out of your slim check."). Like a lot of the governor's plans, it was not well-thought-out, because it didn't consider the broad spectrum of employees, such as those who don't participate in VRS. We can only hope some folks in the General Assembly come up with a better plan that doesn't screw state employees yet again.
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This story lacks context.
The 5% VRS contribution was given instead of a raise in 1983. It was cheaper for the state than a 5% raise. In large part VRS is facing difficulty because—as Ms. Keller points out--administrations of both parties have deferred payments to it.
Governor McDonnell, who specifically pledged during his campaign NOT to rescind the state contribution, is a case in point. He recently deferred a $600+ million contribution to “balance” the budget. He's been playing a shell game to balance the budget.
State employees enrolled in Optional Retirement Programs—such as TIAA-CREF—are also facing a 2% cut in salaries. ORPs are not in financial difficulty. (For VRS participants, the Governor’s 5% cut in retirement contributions would come with a 3% raise.) ORP participants don't get the sleight of hand; they just get their paychecks docked 2% if they want to maintain the same rate of contributions to their retirement accounts.
According to Virginia Tech's CFO, the loss to ORP employees under this plan is greater. Using a $50,000 salary plus benefits as the baseline, a typical Virginia Retirement System employee will lose $747 annually, while an Optional Retirement Plan employee will lose $950.
Does changing who pays the 5% employee contribution add one cent to the VRS fund?
State employees haven’t had a raise in four years. And now that we’re coming out of the recession, we’re facing a 2% cut?
Governor McDonnell’s proposed skewering of underpaid state workers is grossly unfair.
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Welcome to the real economy, state workers. We're all seeing the cost of benefits go up over time, why is it that many government employees think they should be different? When profits go down in a private company, the employees share the pain. In government, when taxes go up, salaries go up. When taxes go down, salaries go up. What a magical world! Some politicians are finally realizing that they do not live in this magical world where gevernment is immune to simple economics.
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The answer to your question is that government employees think and do what anyone would do. They complain and make a fuss, then ultimately accept whatever the upper management (a.k.a. Administration) hands down. It's not the employees' fault that politicians have created and perpetuated an unsustainable system known as VRS.
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The answer to your question is that government employees think and do what anyone would do. They complain and make a fuss, then ultimately accept whatever the upper management (a.k.a. Administration) hands down. It's not the employees' fault that politicians have created and perpetuated an unsustainable system known as VRS.
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Not really.
In a private enterprise, having your salary cut is a telltale sign for you to quit. Private enterprises fire some employees before cutting salaries of those they want to stay. Also, private universities have kept increasing faculty salaries through the downturn.
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Interesting how people who don't work for the government have this brain disconnect about employment, taxes, and taxpayers. People who work for the government pay taxes like everyone else, so we feel the same pain when taxes rise. We also like our jobs and what we do for a variety of reasons -- but we didn't take a vow of poverty when we signed on with the Commonwealth. Yet when budgets get tight, the General Assembly pretty much looks first at a pay freeze. When times get better, there isn't any effort to make up for lost ground. Now we come to the current situation, with a long-term pay freeze and now a possible pay cut. People could leave, but many are too vested in the system and others don't have many options in the current job market. But just because someone works for the state doesn't mean he or she should expect less than a living wage or less respect. I'll bet Texas Mike wants top-notch service when he goes to the DMV, quick response from the State Police, and bare-to-the-pavement roads from VDOT not long after the snow stops, yet he probably yells about the taxes he pays and "state employees [who] think they should be different" when it comes to pay and benefits. No, we just want a fair shake like every other working stiff, not to be screwed by the politicians who only think as far as their next campaign.
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Actually, Texas Mike has a realistic view of the DMV, etc. They're just people, subject to the same wants, needs and foibles as everyone else. My company has had layoffs, and we've already been told that only the top peformers will see pay raises, and those will be small. I'm fortunate to work for a company that has remained in the black during the recession. They've done that by cutting back where they can and making sure we provide products our customers both want and can afford. I pay more for my health plan now, we recently cut a huge percentage of managers by offering an early retirement package, and there were the aforementioned layoffs.
I fail to see any evidence that the faculty at VT isn't paid a "living wage" (a nice PC phrase, that). My wife works for a local government, and has seen her duties increase while her pay is frozen. Responsible governments do what is necessary to balance the books. Be glad they don't also have to turn a profit to please shareholders, or you'd see even more cuts.
My point is this: I don't expect state workers to have less than fair pay or less respect. I expect them to deal with the realities of a down economy, just like the rest of us.
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It seems to me that employees enrolled in the ORP program are having our wages garnished so that VRS can remain insulated from the economic downturn. I don't hold VRS participants responsible. They're irrevocably locked in to a system at once abused and buoyed-up by politicians.
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The change in ORP contributions (10.4% to 8.5%) is a 18.3% DROP relative to what the state puts in today.
Looking at it as -1.9% makes it seem small, when it is absolutely not.
What this means is faculty will be less likely to retire at 65 and be replaced with lower cost junior faculty. This will come back to bite the state you know where eventually.
Course, they can just drop the contributions further, as they are doing now and as they did a few years ago.
A recent report http://www.insidehighered.com/news/2010/04/12/retire shows that the average % of salary into retirement is 10.7 among institutions surveyed. The 8.5% is going to keep the best young faculty away or help promote an exodus of the best faculty.
It doesn't help that our salaries are in the bottom third of peer institutions. With salaries in the bottom third and now retirement benefits in the bottom third, we're going to be able to attract and retain the best young faculty, right?
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