VRS contributions affect state employees' take-home pay

Most veteran state employees won't see much difference in their paychecks today from a major change in the way Virginia pays for their pensions.

Depending on how much they make and what deductions they take for optional benefits, employees hired before July 1, 2010, are likely to see a relatively small decrease in take-home pay.

With this paycheck, all state employees hired before that date will begin contributing 5 percent of their salaries to the Virginia Retirement System to help pay for their pensions. In return, their pay has been raised 5 percent to mostly offset the new requirement, enacted by the General Assembly this year.

"The intent is to make you as whole as possible," said Sara Redding Wilson, director of the Virginia Department of Human Resource Management. "If we take 5 (percent), we're giving you 5."

Take-home pay is less because the 5 percent contribution is based on the higher salary, and so are federal payroll taxes for Social Security and Medicare.

An employee making the median state salary of $37,314 will see a decrease of less than $10 for the two-week pay period that began June 25, according to R. Ronald Jordan, executive director of the Virginia Governmental Employees Association. "If you make more money, you're going to pay more."

At the same time, retirement benefits will improve because they will be based on a higher salary, as will optional benefits such as life and disability insurance.

The tax bite will vary widely among employees. The VRS contribution is made before taxes, but the state raise could move some employees into a higher tax bracket, Wilson said. "It's the tax consequences that (will) get you."

Today's paycheck will be significantly lighter for more than 160 health department employees in Northern Virginia, thanks to a local salary boost they've been getting on top of their state pay.

In Alexandria, for example, 65 health department employees receive local supplements, including merit raises. The supplements are in addition to higher state pay for employees in Northern Virginia because of the cost of living there.

The 5 percent state raise will apply to the portion of the salary paid by the state and locality under a cooperative agreement. But the 5 percent contribution will be based on the entire salary, including the local supplement, and the city isn't covering the difference.

Instead, Alexandria will reduce its supplement by the same amount of the state raise. The employee will have the same total salary but will pay more of it to the VRS.

"If the state takes money away from health department employees, it's not our responsibility to make it up," said Bernard J. Caton, legislative director for Alexandria.

State officials have a different perspective. They say the employees already earn more than their counterparts, including some in the same locality, and it's the local government's decision whether to make up any difference in take-home pay.

"This is not a state issue," said Joan Martin, deputy commissioner for administration at the Virginia Department of Health. "It is a locality issue."

Prince William County is giving a 2 percent cost-of-living raise to its employees, including the 67 health district state employees who receive local supplements. Loudoun County is giving a 3 percent cost-of-living raise for all employees, including 31 health district state employees who receive supplements. The raises won't cover the full 5 percent VRS contribution on the local share of the salaries.

Chesterfield County is the only locality in the Richmond region to pay a local salary supplement for health department employees, and only for the director of the health district, Dr. Jaberi Parham. He receives $15,000 in local supplement on top of his $143,000 salary.

However, Parham's pay won't be affected because he's already been paying 5 percent of his salary to VRS since being hired in October. He's one of 21,000 state and local employees hired since July 1, 2010, and subject to different rules for retirement eligibility and benefits than those hired before that date.

Jordan, of the Virginia Governmental Employees Association, said he is concerned about the effect on take-home pay for affected health department employees, and he intends to do something about it.

"It was the legislature's intent that state employees not take a significant salary hit because of this action," he said. "We will be working with legislative staff and the (assembly) money committees to see if we can find a way to resolve it."