Virginia Retirement System loses fifth of value

State and local governments will have to pay more into the Virginia Retirement System because stock-market losses caused a huge decline in the system's asset value, the legislature's watchdog group was told yesterday.

"Under any scenario, VRS will be asking for higher contribution rates in the next biennium," said Robert P. Schultze, director of the pension system.

The value declined about $12 billion, or 21 percent, in the first half of this year, Charles W. Grant, the system's chief investment officer, told the Joint Legislative Audit and Review Commission.

That was slightly higher than the average of other state pension systems, he said.

He said the system, which has about $43 billion in assets and has 600,000 members from the state and local governments and public schools, is not in danger, but he warned that economic growth will be "slower than we are accustomed to." About two-thirds of funding for pensions comes from the assets.

The system had assets of about $60 billion at its peak in 2007. They declined in 2008 from $58.3 billion to $55.1 billion.

The $43 billion represented an increase of about $3 billion from the end of the first quarter, when the stock market reached its lowest point of the past year. The VRS is the 24th largest public or private pension system in the United States.

Schultze said that in the budget for the fiscal year beginning July 1, 2010, the state may be asked to increase employer contributions by $130 million.

Schultze estimated that the General Assembly will have to appropriate $63 million next year to supplement state employee contribution rates and $139 million for teacher contribution rates.

Among the options presented to the legislators were increasing the minimum retirement age of state employees from 50 to 60 years and asking state employees to contribute to their own retirement. In 1983, during another economic downturn, the state began paying state employees' 2 percent share.

Schultze said the average retirement age of state employees is 61. He said that during the current downturn, teachers in particular have chosen to stay on rather than retire.

Despite the downturn, the pension system will continue to invest "opportunistically," Grant said. He said the credit markets are healing and people are not going into debt, like they once did, but the economic turnaround will depend on monetary and fiscal policy.

Markets already are sending a signal to the Obama administration that the public is leery of too much government debt, he said. The markets have a way of imposing discipline on the government, Grant said.

The pension fund is paying pensions to about 141,000 retirees. Teachers, at 148,000, make up the largest share of the group's 600,000 members.

Contact Tyler Whitley at (804) 649-6780 or .