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How To Gut the State Retirement Fund

by: Elaine in Roanoke

Sat Feb 20, 2010 at 09:49:06 AM EST

You can take it to the bank that there is a serious problem when the Richmond Times-Dispatch challenges a decision made by a Republican governor. Well, that has happened regarding Bob McDonnell's proposal to gut the Virginia Retirement System (VRS) such that the fund will drop its amount on hand to cover future obligations from 84% to 62% by the time his term ends.

The Times-Dispatch ran a lengthy article on the subject February 19.

According to McDonnell's "crystal ball," the VRS will provide a way for state and local governments to escape some of the pain that would come from balancing their budgets. How? By not putting in the government's share of money to cover future obligations for a few years.

That may help McDonnell's - and localities' - budget woes this year, but it could well create terrible problems in the future. Problems that will put in jeopardy the retirements of teachers, police officers, firefighters, all those who work for state or local government.

McDonnell is proposing cuts in contributions to the VRS by more than $600 million. At the same time, he has rejected former Gov. Kaine's proposal to ask present employees to pay into the fund themselves. Instead, he is advocating reduced retirement benefits for future employees, plus making them the only ones to pay into the system.  

If the guys around Gov. Wimpy believe that creating a future group of "second-class citizen" public employees in VRS is going to solve the problem created by cutting government contributions, they better think again. Officials at the VRS warn that reduced payments now would have to be made up in future budgets, either that or jeopardize the solvency of the fund. Any savings the state might realize from reducing benefits for new hires would take decades to realize.

Elaine in Roanoke :: How To Gut the State Retirement Fund
"Some of the legislators probably are under the impression that [McDonnell's proposals] will cure the VRS problem - it doesn't," VRS Director Robert P. Schultze told his board of trustees after McDonnell finally released his budget recommendations. "It takes so long to phase in."

That's common sense economics. If new hires are put under a pension system that will cost the state less, unless all those new hires are a year or two away from retirement, there will be no savings for many years.

"It's just borrowing from the future," said Robley S. Jones, lobbyist for the Virginia Education Association. Teachers account for the largest money fund administered by the $48 billion state system. "Down the road, future taxpayers are going to have to ante up."

Either that, or Virginia will end up in the same condition as states like California, where borrowing from the pension fund and then investing in risky assets in a futile attempt to recoup lost money has bankrupted their pension system.

The Times-Dispatch also reported that the Pew Center for the States has issued a national report that warned of the seriousness of an estimated $1 trillion gap between the liabilities facing state retirement systems and the money available to pay for them. The report warned that states are flirting with disaster by not fully funding their pension plans and other benefits.

"It is irresponsible to defer dealing with the problem because the costs will only go up," said Susan K. Urahn, managing director of the center.

Urahn said that the state pension funds in trouble have practiced a policy of "kicking responsibility down the road." That is, they have used the method now being advocated by Virginia's new Republican governor: not fully funding the pension system in order to balance a strained budget.

The report rated Virginia's pension plans in the middle of the plans studied, but the report was based on data from mid-2008, before the stock market crash and the "Great Recession" drained billions of dollars from state retirement system investments.

According to the Times-Dispatch, Virginia's pension plans were funded at 84 percent of their future liabilities for state employees last summer and 76 percent for teachers; by 2013, VRS projects the plans would fall below 62 percent of their obligations for state employees and 59 percent for teachers at current contribution rates.

McDonnell and former Gov. Tim Kaine both  proposed sharp reductions in the contributions that state and local governments make to pension plans. Kaine proposed forgoing contributions altogether in the fourth quarter, saving the state $135 million while costing the system about $338 million, to help balance this year's budget.

Kaine also proposed shifting a portion of the cost to state employees over the biennium, McDonnell wants to shift contributions by employees to new workers only.

Localities would save more than $500 million under the governor's proposals, but according to the Times-Dispatch, they are uneasy about the tradeoff. Mary Jo Fields, a budget analyst at the Virginia Municipal League said the cuts would push the problem into the future, while counting on the stock market to make up the difference.

"It's a gamble," she said.

Anyone who dares to gamble on big returns from the stock market after last year is a fool.

Personal aside: I remember when the state and localities took over the 5% that employees used to pay into VRS. That action occurred during the last really serious economic downturn in the early 1980's. Because government employees had not received pay increases for several years - exactly the situation today - the employee contribution was taken over by governments.

The action was cheaper for government because the 5% given to employees that way did not have to be counted by the employer in figuring its share of the Social Security tax. So, that benefit was given as an alternative to a pay raise.

McDonnell wants to endanger the pension system and postpone the pain to employees by shifting costs to the future. How typical of what has become the Republican, and too often also the Democratic, response to the fiscal mess this country is in right now. The philosophy is, "Borrow from the future and let the children and grandchildren suffer the consequences!"

News Flash: Reaganomics and Grover Norquist are phony, folks. You cannot get what you refuse to pay for indefinitely. At some point, the books have to balance. There are two ways to do that. First, increase your revenue. Or, cut your expenditures and programs. Or, do some of both.

We must never forget that government services are the safety net for those in our society who need help the most: the poor, the young, the sick, the elderly. They do not have another recourse. If we cut assistance to those people in order to avoid the wealthy and the comfortable having to pay estate taxes or higher income taxes, all of us must live with the consequences. We will become a much meaner, albeit a leaner, society.

What a tragic turn of events caused by selfishness and greed.

"Lord, when did we see you hungry or thirsty, a stranger or lacking clothes, sick or in prison, and did not come to your help?" Then he will answer, "In truth I tell you, in so far as you neglected to do this to one of the least of these, you neglected to do it to me."  - Matthew 25: 44-45

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Let's get this straight
It is past time to understand---- and accept---- the Republican philosophy: government employees are as feckless and lousy as the government they serve. Government workers, like all workers, do not deserve any benefits, repeat, any, including health care and retirement. They are supposed to be self-reliant and pay for their own health care and save for their own retirement.

As for government providing a "safety net" for elderly, for poor, for young, when will you bleeding hearts learn that such matters are not the responsibility of society, which means those who have managed to provide for themselves are not to be taxed for such feckless fools who had the bad taste to be poor, sick, old, or young---- why should the successful and self-reliant have to take care of anyone else? Church charities can deal with the poor and the young, and families can take care of their own elderly, just as families have always done, taking granny and alzheimer grandpa in under the roof of their own children. The eldest daughter will forgo marriage or a life of her own to care for them. Family Values, you know.

Just One Thing
There's just one thing...The same people who buy the Republican philosophy about government being the source of all trouble and taxes being the creation of the Great Satan refuse to give up the services that government provides for them.

They don't want society to care for other elderly, sick, etc....just them. Their daughters shouldn't have to give up anything to take care of the old and sick family members...just your daughters. Their children shouldn't have to pay for private schools, just yours. You don't deserve government pensions or government-provided health care. They do.

I watched in amazement when the little, blue-haired, Tea Pots screamed last August at Bob Goodlatte's "town hall propaganda session" that the government better leave their health carer (i.e., Medicare) alone.

Best of all was the lady who must have been on Social Security and Medicare for the last 20 years yelling that the government shouldn't do anything except have an army and build roads.

The Republican philosophy in a nutshell: I want mine, give me mine, screw you.

[ Parent ]
those feckless govt employees, who do not deserve any "benefits" (in quote marks because, if you'd worked for it, it's earned, not graciously given to you)... Ain't Bobby McD one of them? Also the Cuckoo? I say they ought to lead by example and renounce all the taxpayer-provided perks they're getting now and counting on for the future.

[ Parent ]
I wonder why people who declare that "Government is the problem" and that "We need to starve government" run for office over and over and spend their entire adult life living off the public dole.

They - and I include Ronny McDonnell and Cuckoo in this - are governmental "welfare queens."

I have a message for them: Get a job in a field you believe in. Renounce the pension you will get from the nasty government you hate. Reject the cheap health insurance you get and buy your own in the private market you worship. Stop traveling all over the place at public expense. And, most of all, stop running for office!

Hypocrites all...

[ Parent ]
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