The VRS has been in a steady decline in the past 5 years, since the onset of the Great Recession. One has to ask why, since the stock market recovery has been remarkable and is at an all time high. In short, the VRS got knocked on its financial ass, like everyone else, during the crash. It has not kept pace because the General Assembly has refused to fund it at the levels where they should be funding. Additionally, the State of Virginia has used the VRS like an ATM. It owes the fund millions of dollars that must be repaid. Part of this ‘loan’ is from municipalities and school system pay-ins being deferred.
When the time comes for Peter to pay Paul, the localities and the state are going to get clobbered. I can’t help but notice that Virginia has gone from having one of the top rated pension funds in the nation to being one that is reasonably unhealthy. Pensions should be funded at around 80% of long-term costs to be considered well-funded. Obviously, Virginia is not making the grade.
Virginia is scrambling and you have to ask how. Much of additional burden is falling on the people in the plan. Heretofore, the plan was absorbed by the state and the localities as a benefit. No more. Those in participating localities are now having to pony up a huge cut of their own pension.
Is this how Republicans manage money in the state of Virginia? We have a full Republican top administration and the House of Delegates has been Republican during this time. It seems to me that the General Assembly needs to hup to it and simply start funding this pension fund to the levels that the experts are recommending. It is only fiscally prudent to do so. Virginia doesn’t want to get caught holding the proverbial bag.
Yes, this is how the Politicians often have run programs – they defund them, and then when the other party needs to fix it, they label the fixers as the problem (ie, they need to raise taxes or cut benefits).
“the House of Delegates has been Republican during this time”
In name only, not in action.
It certainly hasn’t kept them from enacting all the social issue bills so I would say its very Republican. Now do you want it to go tea party? Since When are Republicans against responsible spending?
Moon, I hate to tell you how right you are. If VRS were subject to the same laws as private pensions are, multiple people would now be in prison or at least under indictment. Private pensions are governed by ERISA, a Federal law enforced through the Department of Labor. ERISA is intended, among many other things, to ensure that pension funds are adequately funded and that pension sponsors make contributions as needed to remain stable. State and local government pensions are exempt from ERISA. Using pension assets as an ATM, or phony accounting tricks to make them look good, as Virginia does, is considered criminal activity in the private sector under ERISA. The only real solution to the pension fund antics in Virginia is to make public pensions subject to the same requirements as private pensions, or make them subject to ERISA also. Given current practices we’re heading for a situation in which VRS beneficiaries are going to receive less than promised, or taxpayers will have to pay the difference.
@Not Bernie Madoff
Soooo…how do we get state pensions, etc…to fall under ERISA?
THAT would be the solution. Of course, politicians would NEVER limit their power that way.
So the state screws up the pension fund then ends up crying about how taxpayers need to make up the shortfall and now suddenly Unions are the big bad guys. Talk about a double screw over for public servants.
Hmmm, since Del. Marshall voted against all of this crapola and Sen. Colgan helped orchestrate it, thats put you in a bit of pickle, heh, heh, heh.
@Cargosquid
“Of course, politicians would NEVER limit their power that way.”
Cargo – that’s hitting the nail on the head. This situation is no different from the many other ways politicians exempt themselves from the same rules they set for us.
We need to change the system to eliminate the influence of money in politics, but given Citizens United that’s no more likely to happen than is politicians giving up the VRS ATM machine simply because it’s the right thing to do. Also, the concept of the career politician must end. We need statesmen and women in office who serve for a while and then return to the private sector where they have to follow the rules and actually produce something people want. Three guesses as to how likely that is to happen, and the first two don’t count.
@Mom
Not really. Colgan and Marshall are only 2 votes. Surely you don’t think I am particularly pleased with some of the Colgan votes lately, do you?
As for Marshall, what is your point? Even a broken clock is right twice a day. Sometimes Marshall even does better than that.
I tend to evaluate each issue on its own merits rather than checking out the party labels.
@Cargosquid
I am just trying to figure out why the pension isn’t being funded, despite strong recommendations, by our politicians. VRS is mandated by the Virginia Constitution.
Its baffling. It isn’t an option to have the VRS.
When do you join?
@Elena
I agree with you for the most part but would not exonerate the unions completely. In many situations, Detroit for example, the local politicians gave in to excessive union demands in exchange for union support at the polls, thinking they would be out-of-office before the doo-doo hit the fan. There was no way the jurisdictions could ever afford the promises made to those unions. Virginia is different. The unions do not have nearly the power here that they did in Michigan. That’s very good for a variety of reasons, one being that Virginia politicians never made extravagant promises to public employees and the pension claims of Virginia public employees are quite reasonable and justified. The blame here when things fall apart, as they will at some point, is entirely on the politicians who depleted the pension assets and used accounting tricks to make everything look OK for now, knowing that they too, as the politicians in Michigan, will be gone before the worst problems arise.
@Moon-howler
VRS isn’t being fully funded because it is exempt from ERISA, and many, many gimmicks exist to drain money from it if you are a politician, while using slight of hand to make things appear fine to most people. Think like a politician, if that’s possible for people with some degree of conscience and ethics as we have. You can steal from the pension funds, use accounting that makes everything look fine for now, claim to have reduced the deficit, cut taxes and/or increased spending on programs your constituents like, and be able to get out of Dodge before the sky falls, and it’s all perfectly legal.
@Moon-howler
I only bring it up because most of these machinations originate in the Senate Finance Committee which is comprised of a rogues gallery of characters of all political stripes. It is the head of the Imperial Clown Show in Richmond.
Well the seeds might be sown there but there are lots of roads to travel before the budget is signed.
I am simply looking at a reputable fund going to pot under a strong republican domain. As for Colgan, in recent years he might as well just join up with them after the clinic debacle. There was no colgan sign in my yard this last election.
I probably did vote for him last time because I believe he was challenged by some tea party nut. Voting for someone is not the same as supporting them.
cnbc.com:
@Moon-howler
I still have two more years of schoolin’ to do before I get to subvert, …uh..I mean teach those little darling children….bless their hearts.
The things we are willing to do for three months of vacation….
I don’t know of a single school system in the United States that really gives you three months off. At least half of June is eaten and close to half of August.
Do it for the pension and supplemental retirement.
Pensions should be fully funded at the time the liability is incurred. None of this “80% is considered sufficient” garbage. The only way to reign in out of control spending on government is to stop hiding it from the public by shifting the costs in the future. It hurts taxpayers and government employees when those bills finally come due.
It is assumed over time, the length of a career, that the invested money will round out the rest. That usually happens if naughty little politicians don’t put their hand in the cookie jar which is actually illegal to do. However, the fox is guarding the hen house.
if only that Star Scientific investment had panned out – it would have solved all the issues
@Furby McPhee
In the private sector, a pension plan is considered fully-funded when its assets (mostly the investment portfolio) equal the present value of all expected future liabilities (pension benefits) as determined by an independent actuary. Shortfalls MUST be made up by contributions from the plan sponsor. Not adhering to this standard means the ERISA police will be crawling all over you. In the private sector this 100 percent standard must be adhered to. Moon’s graphic above shows VRS to be just under 70 percent, and that’s likely not even taking into consideration that the VRS funded status includes accounting gimmickry not allowed in the private sector. This is what happens when politicians hold themselves to a different standard than applies to everyone else.
@Not Bernie Madoff
Term Limits…Term Limits…Term Limits !!!
It gets even more slippery because I think…operative word THINK….that the VRS funding all falls under the general budget. Perhaps Not Bernie knows the details here?
@Moon-howler
Sorry Moon, I wish I could offer a good answer to that question. I know a lot more about pensions than I know about the legislative process in Virginia.
I don’t know either. I just recall the fact that the VRS fund was being tapped a couple years ago and it was the best kept secret in Virginia. It was one of those fast moves played out on a Sunday in over-time during budget passing time.
I simply don’t understand why the GA won’t just fund the damn pension correctly. VEA keeps a pretty close eye on VRS. They told them for several years that their calculations were off on cost of living. 2 years later VRS finds the mistake and those who were getting distributions had to pay back to the tune of about $500. The idiocy wasn’t that a mistake was made but that after VEA pointed out the error, VRS wouldn’t believe them.
The mistake was in favor of the recipients. Just guarding our money….It makes you wonder what kind of clowns are at the helm. Then there was that matter of VRS buying up Star Scientific. I will never be convinced that was random. Why would any fool buy a stock that had years of financial problems? That company had a bad paper trail a mile wide.
I don’t know all the details on ERISA but it sounds like the right way to go. The pensions should be fully funded based on the present value of their expected liabilities. There should be a provision that allows for some small amount of market fluctuation for when the stock market is down, but nothing more than a year or two.
If politicians want to raid pension funds for extra money, they can do so when the pension fund value is over 110% of the funding needed.
This is something the left and right should agree on. Government workers deserve to have some confidence that they will actually get whatever pension is promised to them (look at Detroit!) and taxpayers should know what the real cost of those blank checks are.
Eventually, when people see how expensive government pensions are, we can get to work on shutting them down for new workers, but we still owe the existing workers what was promised.
I agree with half, Furby. What do you have against pensions?
You obviously are not close to retirement. That’s one of the benefits of working for the public sector. You get less money but better benefits which often involve a pension.
Is it easier to have pensions or to put older folks on welfare or larger social security checks? Well managed pensions usually lure in better workers. The GA is wrong to not fund the pension correctly. they need to review the Virginia Constitution.
Maybe Moon should ask current PWC delegates and Senator Colgan what they intend to do. Perhaps put up a proposed letter for folks to copy, revise as they wish to meet their needs, and mail. Or you can depend on them reading this blog.
I’ve got nothing against pensions except that they are unaffordable for taxpayers and its too easy for politicians to abuse them. Either by buying the votes of government employees by making unaffordable promises or by what Virginia is doing now, raiding the retirement funds for other purposes . We are seeing that across the country. Look at the retired public employees in Detroit who are waiting to find out how much of their pension they will lose in bankruptcy.
Public sector employees should be eligible for social security just like everybody else and have a 403b plan with a portion funded by their employer. Employees with a current pension should get what was promised to them, but we need to phase them out for new employees, just like the feds did in the 80s. That’s fair to everybody, taxpayers and government employees too.
How close I am to retirement doesn’t matter. What matters is that my retirement money is MY money. I control how it is invested and nobody can just arbitrarily take it away or invest it in something like Star Scientific without my OK. If the stock market looks shaky, I can invest my money in something safer.
I want government workers to have the same security and freedom that private sector employees have with their retirement savings. Why don’t you?
401k and 403B really aren’t as good of a program as a pension. In the first place, there is that rascally tax issue. 24% comes right off the top if you live in Virginia. Of course taxpayers can afford to fund pensions. Why can’t they? They can fund pensions just as well as they can fund the 401 and 403 funds.
Unfortunately, some jurisdictions get in over their heads promising sun, moon and stars. That is not the case with Virginia. Make no mistake, the defined contribution plans can be just as politicized.
Someone has fed you a glass of kool aid.
You say taxpayers can afford to fund pensions, but I thought the whole point of this conversation was that VRS isn’t being funded properly. Which is it?
We agree that lots of places overpromise taxpayer money in the future. But it’s a lot harder to do with 403b plans since you actually have to make the deposits now, not 20 years later. That starts showing up in budgets immediately.
I don’t know why you think I’m drinking kool aid. 401k and 403k work for millions of people. Why can’t they work for government workers too? It’s a better deal for them in terms of what they actually get vs. trying to rely on empty promises from 20 years ago and it gives them more control over their retirement. I don’t want government workers to have to beg for the government to honor its obligations to them and be at the mercy of whatever loon gets elected.
You say a pension is better than a 401k or 403b. How is a pension better? Can my employer default on my 401k account, leaving me with nothing? (answer: no) Government pensions are worse than company ones. Company pensions are at least protected by the PGBC or whatever its name is. Government pensions aren’t protected by anybody. While VRS may not be at risk of defaulting today, who knows what will happen in the future. 30 years ago, nobody would have thought Detroit was at risk of default.
There’s a reason pensions have died in the corporate world. And they will die in the government world too. It just takes government longer to adjust to reality. (as usual)
The pension is better because it will pay you as long as you live. Defined contribution plans run out if you live long enough. There are ways to filch on a 401k also. nMany Americans lost so much in the Great Recesion that they were unable to retire.
I have both. Ask which on is better.
401(k) and 403(b) plans have the potential to be better than defined benefit plans, but many retirees might be better off with the traditional pensions as things stand now.
The advantages of the 401(k) and 403(b) plans is that they offer tax-deferred savings, can be managed in the interests of the saver, can’t be pilfered by the plan sponsor as is happening to VRS, and the assets can be bequeathed to the retiree’s family. Pensions typically can provide a spousal benefit upon the death of the retiree but the value disappears upon the surviving spouse’s death unlike IRA Rollover balances, where 401(k) and 403(b) assets should be moved upon retirement. Also, private and as we are seeing now, some municipal traditional pensions can go bust leaving the retiree with little or nothing. A well-diversified self-directed plan does not put all of the investment assets in one basket.
Disadvantages of the 401(k) and 403(b) plans are that many who are eligible do not participate and thus aren’t accumulating retirement savings. The plans are often laden with high fees and poor investment choices. Also, most participants in these plans have no idea which investments to chose.
All said and done, I think most people would be better off with the 401(k) and 403(b) plans rather than the traditional pensions if the problems could be resolved.
I totally disagree. Deferment is great. Eventually you have to pay the piper.Pension distribution is taxed as income but not like 401k or 403b.
What you didn’t point out is that once the defined contribution plans run out, thats it. There is no more. A pension in a well managed plan lasts as long as you do. I dont know anyone, if given the choice who would not take the pension.
Yes, a defined contribution plan can run out, but as I pointed out, I want to make government employees eligible for social security as a safeguard so they will always have something to rely on even if they spend the money in their 401k or 403b foolishly. The majority of people in the country have defined contribution plans and can manage them well enough. Why do you think government workers can’t do the same?
When you claim pension plans are better, you keep using the magic phrase “well managed plan”. In theory, yes, a well managed pension is better for the pensioner than a defined contribution plan. But where are the well managed plans these days? Virginia is doing better than most states and VRS has problems. How would you like to be in California, Illinois or even Maryland? When these plans go bust, the government workers get completely screwed. There is no PGBC for government workers. Watch what happens to the retired government workers in Detroit and then tell me pensions are better for the workers.
Government employees deserve to control their own retirement and not be subject to the whims of whoever is in office over the next 20-30 years. Millions of people in the private sector have been screwed over by pension defaults and it’s starting to happen for government workers. I genuinely hope it never happens in Virginia, but you’re being naive if you think it couldn’t happen.
Again, I’m not talking about changing pensions for existing government workers. Just switching new workers to a 403b plan so that the pension problem gets better with time and eventually goes away.
The sky could also fall. 401K and 403B plans can also have a lot of turkey funds in them. Often companies have snake oil salesmen administering said plans. These plans often have high administrative costs as well as annuity charges, regardless of whether you want to take an annuity or not.
Don’t try to put words in my mouth. I never said govt workers couldn’t manage their money. I don’t see why they can’t do as good of a job as other people. However, it isn’t really about managing your money. If you think a person on a defined contribution program is going to fair as well in the end as someone on a pension, think again. They won’t unless the person really socks away a huge amount of money. Most folks can’t afford to sock away unlimited amounts of their salary.
If someone wants to handle their own money, by all means, start up an IRA. Your suggestion that a 401 or 403 is safer than a pension is unfounded. Nothing is fool proof. In a recession or financial crisis, pension funds often have more sustainability than the 401 and 403 type plans. Many people have had to forego retirement plans who were relying on such plans after the Great Recession. Why? Their plans lost too much money.
Additionally, government workers ARE eligible for social security. Why wouldn’t they be?
I don’t know of anyone who would chose 401, 403 or IRA over a pension. Its simpler to put laws in place that regulate all pensions than to start screwing govt. workers. All 401/403 plans should be supplemental.
Lastly, tell us truthfully why you care.
Why do I care? Because my father got screwed out of his pension when the company he worked for defaulted on it. He ended up getting barely half what was promised him.
Me, I’m glad I have no pension. My retirement money is mine. If I invest it poorly, it’s my own damn fault. And anyone with half a brain knows you move to safer investments like bonds when you get close to retirement. I’d rather manage my own money than have the governor put it in some company his getting kickbacks from. They’ve even got funds now that do it automatically so you just pick a date you want to retire at and it moves from stocks to bonds gradually over the years to reduce your risk.
Some government employees are eligible for social security but many aren’t. I don’t know all the details about who is and who isn’t, but I know there are government employees that can’t get social security because they have a government pension. The social security web site even says so. Go look it up if you don’t believe me. (And I’m saying they SHOULD be eligible for social security.)
I’d rather have 100% control over a smaller retirement savings than put my retirement plans at the mercy of somebody else. I never claimed that a fully funded defined benefit pension plan would be great, but those have gone the way of the dinosaurs. The money isn’t there for them anymore, even in Virginia, let alone states that have worse finances. There are only 15 states that are even meeting 80% of their pension funding needs and only Wisconsin is at 100%. Illinois is at less than half. Do you really think all of these states will come up with the billions of dollars they need to meet these obligations when they haven’t been able to do it already?
I never claimed there aren’t risks with 401k or 403b plans. But they are risks you can control and they have worked for millions of people. The risks of government pension defaults are only starting to appear. Some government workers will do fine I’m sure (good time to live in Wisconsin) others are going to get screwed like my father did. I think if government workers understood the REAL risks between a 401k and a traditional pension, they’d choose a 401k every time.
I keep pointing at Detroit and you keep ignoring it. These are city employees who were promised a pension that they are now going to have cut by 50% of more and there’s nothing they can do about it. I’d much rather risk a couple of lean years because the market is bad than have some bozo politician ruin my finances for the rest of my life.
Why don’t you check with the statistics through an organization like AARP and see which plan people like best and where the lowest number of poor seniors are in the grand scheme of things. My grandfather in law got screwed out of his pension also. It was through the YMCA. That surely isn’t an indictment on all pensions.
The reason companies have gone with 401k is that they can cheap out. Most have ceilings and they get a tax break for doing it. Someone has sold you a bill of goods.
Federal government pensions (the old ones that aren’t involved with social security) are probably more beneficial to the retiree than any social security ever thought of being. Ask yourself if you have ever known a poor federal employee retiree. I have not.
I would never move all my assets to bonds. In fact, most responsible financial advisors would recommend against doing such a thing, even in retirement. I think the operative word is balance here.
Finally, I totally disagree. Given the facts, most government workers (local and state) would chose VRS or something similar each and every time over 401k if they were presented with an either or choice. The lucky ones get both.
I am one of those poor fools who are stuck with a government pension (actually two pensions). I was forced to start socking away 7-1/2% of my annual before tax income when I started work at 22. My employer also kicked in 7-1/2%. I was coerced to save that way for over 28 years. Then I went to work for another government and was forced into their mandatory retirement savings plan where I contributed zero and they contributed my share for over nine years. As a kicker, I was stupid enough to buy 4 more years of service because of my active duty military service. Now I have a guaranteed income that is very wobbly to say the least. If Fairfax County, the State of Virginia and the U.S. Government go into bankruptcy, I am screwed. If I had it to do over again, I would have wanted to manage my own voluntary savings and would be sitting on a solid pile of Beanie Baby, Borders Books, and Oldsmobile stocks.
You poor slob. Prepare to eat cat food in your old age, BS.
From what I understand, and I may have misunderstood this, the VRS is funded by payments from state and local government entities. The amount they pay, the VRS rate, is set by the VRS’s investment advisory board. I’d like to think that they couldn’t be influenced by political pressures, but clearly they can be as the games they played with the rates in 2009-ish indicate.
The difficulty with fully funding VRS lies in the pressure from localities. When VRS increases the contribution rate they get push back from localities and state government entities that the increase means they can’t give their employees raises, will have to lay people off, or will have to reduce services, which no one wants to do. Localities in particular like to blame changes in the VRS rate for property tax increases.
Paying back the deliberate underfunding of VRS over the past several years means we’ll have to either cut spending or raise taxes. Maybe both.
I thought I heard about a surplus at the state level somewhere. Maybe the bast place for that surplus is to repay VRS the borrowed funds and lower than needed contributions. It may not be enough, but maybe it will be a start.
I think some of that is going into the state police fund which is more underfunded than the regular VRS fund.
If the localities have to up their tax rate a penny or two along the way, they should do so. They are the ones getting the services of the employees. Part of those services includes paying in to the pension fund.
That is one of the trade offs and why some people prefer public service to private entities–the benefits are better.