McDonnell Recommends Contributing $2.21 Billion to VRS

By Amber Lester Kennedy Friday, December 16, 2011

Gov. Bob McDonnell will propose a record employer contribution to the retirement funds of state employees in his biennial budget, to be released Monday.

McDonnell announced Thursday that his budget will recommend a total of $2.21 billion in employer contributions to state employee and teacher funds by state and local governments, which will amount to the largest ever contribution by employers to the Virginia Retirement System (VRS). As of June 30, VRS had nearly 340,000 active members and more than 156,000 retirees and beneficiaries.

His proposal includes $600 million in additional funding for state employee pensions and $1.6 billion in state and local funds for teachers’ retirement plans.

“The plain truth is our state retirement system is underfunded, and this situation threatens the system’s long-term solvency,” McDonnell said. “We must fund VRS at substantially higher levels so benefits will be there for the hardworking teachers, police officers, firefighters, state employees – our neighbors, friends and family members – who are depending on the system for their retirements.”

He said the increase more than doubles the employer contributions from the fiscal year 2011-2012 budget, and will “reverse the downward spiral VRS has been on.” In the past two years, the gap between the VRS liabilities and the assets available to pay the liabilities has increased 69 percent, from $11.8 billion to $19.9 billion.

The proposal fully funds the regular contribution rates, which are 8.76 percent for state employees and 11.66 percent for teachers, of which 1 percent and 1.45 percent are included for the payback of the contributions that were deferred to balance the budget in 2010. Specifically, VRS will receive a payback of deferred contributions of $67.1 million for state employees and $197.4 million for teachers during the upcoming biennium. The budget fully funds the first two installments of the 10-year payback period.

The numbers are based on the payroll for state employees as of July 1 and the total creditable compensation for teachers for fiscal year 2011. The data are for employer contributions, which do not include contributions from state or local employees.

If the plan is approved, VRS will receive $596.9 million for state employees and $1.61 billion for teachers in the upcoming biennium.