Friday, January 13, 2012

VRS Legislation

Friday the 13th is not a good day to have 140 legislators rushing home on Virginia’s highways. But, the first week of the session is over and they are heading home. I wish them safe passage, and I am glad to see things shut down for the weekend.

Today, I’ll address the Virginia Retirement System (VRS) bills that could affect public school employees.

But, first, I want to commend our Governor for stepping up to the plate and addressing the underfunding of the VRS. For 20 years, the General Assembly and various governors have kicked the can down the road, shifting the burden for paying the bill into the future. Bob McDonnell is committed to properly funding the VRS. On this issue he is dead right, and he deserves credit.

Here are the bills, and my goal is to stick to the facts. Once the VEA Legislative Committee provides direction on the bills, we will shift to advocacy of VEA’s positions.

HB 208 (Jackson Miller) - This bill allows retired law enforcement officers to be employed as school security personnel without losing their retirement benefits. The bill requires a gap in service to be determined by the VRS Board of Trustees. It prohibits individuals who are participating in early retirement incentive programs from becoming employed. It stipulates that no additional VRS benefits will result from this employment.

HB 257 (Stolle) – This bill enables local governments to establish their own defined-contribution plans for new hires. The new hires would not participate in the VRS. The local government or school board would determine the specifics of the plan.

HB 702 (Filler-Corn) – This bill provides the retiree health care credit to support personnel who are not presently eligible for the credit.

HB 792 (Tata) – This bill allows local government employees to participate in the VRS deferred compensation plan. This would give a VRS-run option to corporate 403(b)/401(k) providers.

HB 1129 (Bill Howell and Chris Jones) – Makes several changes to the VRS benefit structure. Some of these changes affect current employees.

As background, remember that your VRS retirement benefit is currently based on the following formula:

Average Final Compensation X 1.7 X Years of Service = Annual Benefit

Under the provisions of this bill, the calculation of average final compensation changes to cover a period of 60 months rather than 36 months. Under current law, the use of a 60-month period applies only to those employees hired on or after July 1, 2010. However, current employees affected by this change in average final compensation may use the 36-month period of calculation for compensation received prior to January 1, 2013, if it is greater than the 60-month period of calculation.

The bill reduces the cost of living adjustments (COLA) to those employees who reach the age for unreduced retirement benefits. Further, it reduces the COLA to the first two percent of inflation plus one-half of the next two percent, for a maximum total of three percent. Under current law, the COLA is the first three percent of inflation plus one-half of the next four percent, for a maximum total of five percent. Employees who are within five years of their unreduced retirement date at that time are grandfathered and not affected by this new cap on the COLA.

Finally, for those hired on or after January 1, 2013, the bill reduces the multiplier from 1.7 to 1.6.

SJR 5 (Janet Howell) – This resolution proposes a rather complex amendment to the Constitution. Without going into the details, it requires that the state fund the VRS in accordance with the rate certified by the VRS Board of Trustees.