State and local government workers in Virginia enjoy a generous pension program. The state repeatedly has expanded retirees’ benefits over the years, while making sure employees paid nothing toward their retirement.
The economy’s recent nosedive pulled the retirement program’s investment portfolio down with it. Now some state and city officials worry that the pension system’s largess cannot be sustained.
The investment losses were significant enough that the state may have to inject nearly $400 million more into the system over the next two years. South Hampton Roads cities are also having to ante up more money during a period when they, like the state, face budget shortfalls.
Virginia Beach alone has 16,000 city and school employees in the retirement program. Since 2006, the city’s annual payments to the Virginia Retirement System jumped by nearly a third, to $107 million last year from $83 million in 2006. The same is true of Chesapeake, which has 9,000 city and school employees in the system. Its VRS payments ballooned to $57.5 million last year from $43.6 million in 2006. Both cities expect their contributions to increase again this year.
“We’re all paying the piper,” said Vicki Lucente, a Chesapeake assistant superintendent and a former finance official for Virginia Beach schools. “Everything kind of collapsed at the same time.”
State and city officials are considering adjustments to what some view as an unsustainable system. Beach Mayor Will Sessoms, for example, formed a task force to investigate changes. “The private sector cannot afford a pension system like the city and state offer,” he said. “The question is, can the city and state afford it?”
In 1983, the General Assembly wanted to increase take-home pay for employees, many of whom, such as teachers and police officers, were notoriously underpaid. Rather than set aside money for raises, lawmakers allowed the state to pick up the 5 percent contribution to the retirement fund that employees had been paying out of their salaries. Many localities followed suit.
“Because of the tax-efficiency of that approach, it seemed like a novel and clever way to reward public employees,” said Robert P. Schultze, the director of the VRS. “Now, we find ourselves sort of alone in that approach. We are an outlier.”
Virginia has 350,000 active teachers and workers in its retirement system. It is only one of eight states that does not require government workers to contribute to their retirement plans and one of three that pays contributions on behalf of employees, a House Appropriations Committee analyst said.
