Yesterday, I asked you to write your Senator urging opposition to HB 1129. VEA formed and is a member of the Virginia Pension Protection Coalition. One of our coalition partners is the Virginia Professional Firefighters. They just put out a great video on HB 1129 – I thought you might enjoy it. Click here to watch.
Today, I’ll summarize SB 498, which will reduce the retirement benefits of future teachers.
Click here to send a message to your delegate regarding SB 498.
SB 498 (Watkins) – Creates a new hybrid retirement program, administered by the VRS, creates a new retirement system including both a defined-contribution (DB) and a defined benefit (DC) components. All new state and local employees commencing employment on or after January 1, 2014 would make an irrevocable election to participate in the hybrid plan or the traditional retirement plan. Employees in-service on December 31, 2013 would be given the opportunity to make a one-time, irrevocable election to participate in the new hybrid program.
The Defined Benefit (DB) component would have a 1.0% multiplier that generates a 30% replacement rate after 30 years of service and requires a 4% member contribution. The current defined benefit program produces 51% replacement after 30 years.
The Defined Contribution (DC) component would require a 1% mandatory member contribution matched by the employer. Up to an additional 4% member contribution may be made with a corresponding 2.5% employer match. Total contributions to the DC component would be as follows:
Mandatory – 1% employee (EE) plus 1% employer (ER) match
Elective – 1% EE plus 1% ER match
3% EE plus 1.5% ER match
Total Possible Contributions to the DC component
5% EE plus 3.5% ER
Total possible employee contribution is 9% including the 4% for the DB.
Total possible employer contribution is 3.5% plus the actuarially determined DB contribution.
Localities could continue to participate in the VRS disability program, contract with a private disability insurance provider, or opt not to provide disability insurance. Localities would join the plan under a one-time irrevocable decision. This provision is a major disadvantage of this proposal.
The major advantage of this proposal when it is compared to the House plan (HB 1129) is that this proposal changes nothing for current employees.
Implementation would have significant undeterminable costs associated with systems development plus $1.3 million additional implementation costs.
The bill also requires a General Assembly phase in of full funding for the VRS Board’s certified contribution rate. Full payment would be reached in the 2018-2020 biennium.
In regard to this proposal, which was offered by JLARC as an option, “… employees at each income level used to measure income replacement could potentially exceed the income replacement targets if they could defer 5 percent of their salary to their retirement account in addition to the four percent required to the defined benefit portion, for a total of nine percent throughout their career …, however, a nine percent deferment level appears unlikely for most employees, given relatively low average salaries.”