During a radio interview the other day Gov. Bob McDonnell intimated that state workers might have to cough up more dough to help fund their own retirement plans. The Virginia Retirement System, he said, faces an $18 billion unfunded liability that "even tremendous stock market returns" cannot offset.
If so, the fault does not lie with state workers. Nor does it lie with the professional managers who run the VRS. Virginia's retirement system ranks among the better-run state pension systems. VRS has incorporated modest assumptions about rates of return on investment. That marks a sharp contrast to the shady practice in many other states that have built unrealistic expectations into their assumptions in order to divert pension contributions to more politically sexy outlays.
How has Virginia's political leadership rewarded this sober approach? By undermining it at every turn. In 16 of the past 21 years, the General Assembly has appropriated less for the pension fund than VRS recommended. Last year the state skipped making $620 million in payments to fund current operations.
Certain Republican lawmakers tried to reassure skeptics of the move by insisting that, in fact, the state actually had been over-investing, and that robust stock market returns would more than make up for any cutbacks. Their own behavior gave the lie to that when they passed a law making new state hires contribute to their pensions, and giving localities the option of making local new hires to do the same. There would have been no need for the measure if the pension system was bursting with revenue.
The graying of the baby boom generation presents pension systems with a challenge that is playing out at the national level in the debate over the sustainability of Social Security and Medicare. The weight of demographic trends should not be discounted.
But that's not the problem with the VRS. The problem with the VRS is that elected officials have chronically under-funded the system — and now they want someone else to clean up their mess. The governor calls that "a discussion I'm going to have with the General Assembly this year." We call it welshing on a promise.
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