Reversing a campaign promise, Gov. Bob McDonnell announced Thursday that he will ask more than 86,000 state employees to pay 5 percent of their salaries toward their pensions.
McDonnell proposes to partly offset the bite on paychecks by raising pay 3 percent for state employees hired before new retirement rules took effect on July 1. Employees hired since the new law took effect already pay 5 percent toward pensions.
The changes would leave employees with 2 percent less in their take-home pay, unless the agencies they work for make up the difference in budget savings for a one-time bonus.
The governor, who will present his proposed budget amendments to legislators today, said the proposed changes are essential for a retirement system that is underfunded by $17.6 billion. The proposals, including local funding for teacher pensions, would add $311 million to the system in the 2012 budget year.
"The system is broken and badly in need of repair," McDonnell said in a conference call with reporters. "I will not pass on a broken system to another governor."
The state has been picking up the full 5 percent tab for state workers since 1983. The system was initiated then in lieu of a pay raise and was continued after that.
During his campaign for governor in 2009 and as recently as April of this year, McDonnell said current and many local employees took their jobs with the expectation that their retirement contributions would come from their employer.
"We cannot turn our back on that agreement," he said April 13. "To do so would be unfair to Virginians who work hard for our commonwealth every day."
McDonnell said Thursday that the change "is recognition that we have a vastly different situation."
The governor faced a $4 billion budget deficit when he took office in January. He and the General Assembly balanced the budget in part by deferring payment of $675 million into state employee and teacher pensions.
"It was not a good idea," McDonnell said Thursday.
However, he said that money will be repaid within 10 years and will have little effect on the actuarial soundness of the $51 billion retirement fund.
Initial reaction to the governor's plan was muted.
R. Ronald Jordan, executive director of the Virginia Governmental Employees Association, called the proposal a "good-faith effort" to keep the system solvent but expressed "deep concerns" about requiring existing employees to pay 5 percent of their salary to pension.
Unless agencies achieve enough savings for a bonus, "state employees could face a pay cut amounting to a little over 2 percent," he said.
Jordan also said that another McDonnell proposal, to offer new employees the option of a defined contribution, or 401(k) plan, is worth considering, but only as an option.
"We would vigorously oppose any efforts to make such a program mandatory," he said.
The administration also plans to contribute 2 percent of pay toward teacher pensions, which local school divisions would have to match.
Altogether, the governor proposes to add $206 million in state contributions to state employee and teacher retirement plans. In addition, local governments would have to pay about $105 million for teacher pensions to match the state share.
McDonnell will give local governments and school divisions an opportunity to ask school teachers and other local employees to pay their share of pension costs, but only if they raise pay by at least 3 percent to partly offset the shifted burden.
Robley S. Jones, lobbyist for the Virginia Education Association, questioned whether teachers would have the same opportunity as state employees to offset the cost of the pension contribution.
"It's inequitable," Jones said.
mmartz@timesdispatch.com
(804) 649-6964
twhitley@timesdispatch.com
(804) 649-6780
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