RICHMOND — Virginia Gov. Bob McDonnell wants new state workers to pay more into their retirement plans and is pushing an optional mixed 401(k)-style plan as part of his proposed overhaul to Virginia’s depleted retirement fund.
Mr. McDonnell, a Republican, unveiled the second part of his package Thursday after announcing in December that he wants to infuse $2.2 billion into the system — the largest total in state history.
“When your unfunded liability’s $20 billion, if you’re going to do it, let’s do something significant,” he said. “So I thought that asking our state employees to pay 1 percent, phased in over two years, was not an unreasonable request.”
Mr. McDonnell estimates that in total, his proposal will put more than $5.8 billion into the retirement fund over the next 21 years.
Last year, he proposed that state employees contribute 5 percent to their retirement plans, to be partially offset by a 3 percent salary increase.
However, the General Assembly instead opted for a 5 percent contribution from all employees in exchange for a 5 percent raise for those hired before July 1, 2010. Those hired after that date were already paying the amount.
The governor’s proposal adopts recommendations from a recent report from the Joint Legislative Audit and Review Commission, the General Assembly’s investigative arm. Among the recommendations are to adjust a multiplier used to calculate retirement benefits for state and local employees and teachers hired on or after Jan. 1, 2013, and reduce the cost-of-living adjustment to a maximum of 3 percent starting January 2013.
Mr. McDonnell is also proposing an optional plan for employees that includes a 401(k)-style element, similar to the optional defined contribution plan that cleared the House but stalled in the Senate last year.
The proposal starting July 1 would also phase in over two years an increase in contributions for new hires from 5 percent to 6 percent. The increase would apply to state employees and law enforcement officials, but exclude judges, teachers and other employees.
Robley Jones, director of government relations and research for the Virginia Education Association, praised the governor for taking the problem seriously, but said the group still had concerns about the reduced multiplier and 3 percent COLA cap.
“As the JLARC report pointed out, to be secure in your retirement, you need about 80 percent of your average final salary,” he said, adding such changes could pull down that figure.
The report also states that tinkering with the state’s retirement benefits could hurt recruiting employees.
Mr. McDonnell said that shouldn’t be a problem, considering Virginia’s strong, committed workforce, the tough job market and the state’s robust, defined-benefit program.
“We don’t see any reason to believe that asking state employees to pay another 1 percent or having a tweak in the cost-of-living adjustments is going to have people not come to work for the Commonwealth of Virginia,” he said.
• David Sherfinski can be reached at dsherfinski@washingtontimes.com.
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