McDonnell Approves VRS Changes
Gov. Bob McDonnell has signed into law HB 1130, which makes sweeping changes to the Virginia Retirement System (VRS), and proposed several technical amendments to counterpart bills SB 497 and SB 498.
The changes include reduced pension benefits for employees with less than five years of service and a different type of retirement plan for state and local employees hired after Jan. 1, 2014. Because McDonnell signed one bill, the legislation will go into effect regardless of the General Assembly’s actions on the amendments in its veto session April 18.
The legislation signed into law consists of three components:
- Changes in benefits effective Jan. 1, 2013 — including changes to requirements for years of service before retirement, the average final compensation and multiplier used to calculate benefits and a 3 percent per year cap on cost-of-living adjustments — for state and local employees hired since July 1, 2010, and current employees with less than five years of service
- Creation of a mandatory hybrid plan for all state and local employees hired on or after Jan. 1, 2014, except for hazardous-duty employees such as police and firefighters, that will combine reduced pension benefits and a 401(k)-style contribution plan
- A statutory commitment for the General Assembly and Governor to gradually adopt the same method of calculating retirement rates for teachers and state employees as the VRS Board of Trustees, with a requirement that the state must fully fund the VRS rates by 2018–2020
Under the new hybrid plan, employees will pay 4 percent of salary toward pension benefits and 1 percent into the contribution plan, while government employers will pay a mandatory 1 percent to the contribution plan and up to 3.5 percent for employees who make the maximum allowable contributions of 9 percent.
The proposed budget adopted last week includes options for local governments to use the legislative rates for local employees over the next two years, and to pay the same rates for their employees as they do this year or pay the higher rates certified by VRS.
McDonnell’s proposed amendments to the two Senate bills include:
- Mandatory sickness and liability coverage for local employees under the new hybrid plan
- Expanding the pool of employees to be covered by certain changes
- Extending the ability to phase in payment of the full 5 percent member contribution by employees over five years to all local employers
- Several technical corrections
UPDATE: On Monday, Moody's Investor Services issued its Weekly Credit Outlook briefing (PDF) and gave McDonnell's VRS reforms high marks. The bond-rating agency said the reforms were "credit positive."
LAST UPDATED 4/11/2012