(Click on graph for more legible image.)
Despite lower wages and salaries, the commonwealth of Virginia’s employee compensation package remains marginally competitive (defined as 90% or more of private-sector compensation), thanks to superior retirement benefits.
But that fat retirement plan may not count for much if employees regard it as hopelessly under-funded and question whether they will receive the promised benefits. Between 2009 to 2011, the gap between the Virginia Retirement System liabilities and the assets on hand to pay for them increased by 69 percent from $11.8 billion to $19.9 billion, reports the Joint Legislative Audit and Review Commission, in its new report, “Review of Retirement Benefits for State and Local Government Employees.”
And continued under-funding could increase those liabilities in a big hurry. The chart at the top of this post shows how state contributions have consistently lagged requests since 1992. JLARC inquired what would happen if the state continued to fund only 75% of requested contributions. The answer: The unfunded liability could increase by an additional $34.5 billion over the next ten years. That would mean annual contributions would have to be $314 million a year higher by 2022 than if the state kept up full payments.
Click on graph for more legible image.
“By not making the full contribution,” writes JLARC, “the State loses the benefit of the compounding interest that would have been earned on the contributed
funds. Had the employer contributions for the State employees’ and teachers’ plans been funded according to VRS recommendations in the past 20 years, VRS estimates that the trust fund would have ten percent more in assets, or $5.7 billion, than is currently the case.”
The state has an obligation to make good its promises to state employees, many of whom have worked decades on the understanding that their lower salaries would be offset by generous pension benefits. Further, there is no excuse for saddling future generations of taxpayers to honor that commitment.
— JAB
