Virginia’s public employees have endured a couple rounds of cuts to their defined benefit pensions in the past several years. Most recently, in 2012, the Virginia General Assembly passed a law that forced new hires, starting January 1, 2014, into a “combo” defined benefit/defined contribution plan. That came just a couple years after legislation that cut pensions for certain public employees.
Now, William Howell, the speaker of the house in Virginia, wants to have a commission study another cut to public employees’ retirement security; this time, a full conversion to a risky, inadequate, defined contribution 401(k)-style plan. HB 665 was introduced earlier this month.
Many view this legislation as a legacy-building move by the elderly speaker, who is likely to retire in a few years. Howell is a long-time advocate of defined contribution plans and would likely view conversion as a feather in his cap before he ends his political career. Virginia’s public employees, however, are already seeing the effects of earlier rounds of cuts.
Recent hires forced into the “combo” retirement plan are facing much lower levels of replacement income in retirement compared to those in the defined benefit pension plan (33 percent for the combo versus 48 percent in the pension). There’s plenty of evidence now that defined contribution 401(k)-style plans provide an inadequate retirement savings compared to defined benefit pension plans. Forcing new public employees in Virginia into a 401(k)-style plan would further erode the retirement security of workers there.
The real issue here, as in many states, is underfunding by the legislature. The Virginia legislature skipped over $700 million in payments in 2011 and 2012. Many pension plans took a big hit during the Great Recession, but pension funding levels are improving steadily as the economy recovers. At least some politicians in Richmond recognize this. The House Appropriations chairman, Rep. Chris Jones, is committed to making full pension payments each year. “That would speak volumes to our commitment to addressing the unfunded liability,” Rep. Jones said.
Virginia’s public employees have already seen their retirement security eroded due to rounds of pension cuts in the name of fiscal conservatism. Speaker Howell’s proposal for yet another commission to study yet another round of damaging cuts to retirement security is both unnecessary and dangerous. State Senator John Watkins, who was deeply involved in the 2012 move to a combo plan, said it best: “You can’t keep changing it just to change it.”