SOLUTIONS : Virginia
Pension Plan Reform in Virginia
Government retirement plans are unsustainable in many people's opinions. In some states and cities, retirement funds are causing a huge budgetary problem because the costs are rising and unpredictable. These retirement systems were set up decades ago when pressure on government expenditures were much less, the average age of a retired worker when he or she died was many years earlier, and when medical advances had not enhanced the quality and longevity of life for our retired community as is the case today.
Over the years, government retirement has continued as a defined benefits program while the private and non-profit sectors of our economy have moved away from those retirement programs and toward defined contribution plans. Defined contribution plans shift the burden of retirement planning to the employee and away from the employer (the government which is funded through our taxes). Some countries have moved away from defined benefit systems entirely.
The Virginia Retirement System continues as a defined benefits program even though that type of retirement program is becoming less and less available in the private and non-profit sectors.
This paper by Robert Carlson is offered as part of the discussion on changing the Virginia retirement system. It suggests that Virginia move toward a combined retirement program that includes partially a defined benefits program and added to this should be a defined contributions program. Such a balanced system would make the Commonwealth's costs lower and more predictable while providing attractive benefits to employees.
The author of this paper is quite well versed in this issue having served on the Virginia Retirement System Board of Trustees in the past and is the current Chairman of the Fairfax County Employees' Retirement System Board of Trustees. He is a nationally recognized investment expert and writes regularly about investments and retirement needs. He writes a monthly newsletter (and corresponding website) called "Retirement Watch" (see page 21).
The views expressed in the study are, of course, his own and do not necessarily reflect those of any organization with which he is affiliated.
As Virginia begins to consider changes in the retirement system of state employees, this paper will hopefully add to that discussion and offer a viable suggestion to strengthen the system for both the state worker and the taxpayers, who not only pay the salaries for these workers but also are on the hook for the promised payments in a defined benefits system.