Md. wrestles with its own pension plan woes
RICHMOND - The Republican speaker of the Virginia House of Delegates wants to start requiring new state employees to contribute to their own 401(k)-style retirement plans rather than continue to rely on a grossly underfunded public pension system that is becoming a drain on the state's budget.
House Speaker Bill Howell, R-Fredericksburg, said the bulk of an employee's pension should come from stock market investments rather than taxpayers.
The Virginia General Assembly last year changed the pension rules so that state employees pay 4 percent of their salary into the Virginia Retirement System and 1 percent to a 401(k)-style plan. But Howell called that kind of reform "nibbling around the edges" and said the percentages should be reversed.
"Very few private-sector companies have a defined-benefit plan anymore," Howell told The Washington Examiner. "We're continuing to work on that."
Howell said dramatic changes are needed to shore up state's pension system, which suffered from poor investment returns and inadequate funding from Richmond. The plan, fully funded a decade ago, is now only 65 percent funded.
State governments across the country are wrestling with their pension funds. To make up for dwindling investment returns, governments are pumping more money than ever into those retirement plans, draining money from education, transportation and other priorities.
In Maryland, the state's pension fund is 64 percent funded, or about $19 billion short, but General Assembly Democrats have repeatedly rejected any effort to move employees to a 401(k)-style retirement plan. The current system, officials said, ensures employees a stable income throughout their retirement.
Sen. David Brinkley, R-Frederick and Carroll, tried several times, most recently last year, to change Maryland's public pension system, only to be rebuffed by the Democratic majority.
"[Democrats] are just not going to go for defined contribution," he said.
Del. Melony Griffith, D-Prince George's, chairwoman of the House Oversight Committee on Pensions, has marshalled through the assembly measures that decreased pension benefits, increased employee contributions and shifted the cost of teachers' pensions to local governments, all to make the fund more stable.
Other changes are expected, including a bill to raise how much the state pays into the fund each year, but Griffith said it's unlikely Maryland will do anything as dramatic as shift to a 401(k)-style plan.
Public workers oppose sweeping changes to existing retirement plans.
Virginia Education Association Director Rob Jones said relying on the markets to determine a worker's retirement can be risky and lead to smaller payouts. The average annual benefit for state workers is $18,324, and $23,048 for teachers.
"We're entering a world where pensions benefits are being eroded," Jones said. "We should want a system where our elderly can live with dignity when their working days are over."
Virginia House Minority Leader David Toscano, D-Charlottesville, said Democrats favor providing more choices, like allowing state universities to offer employees a 401(k)-style plan. But workers should not be required to put their money in the stock market, he said.
"People who work on the public payroll don't make as much as people in the private sector, and part of what they rely on is a pension," Toscano said. "My concern is if we take too many people out of the system we have now, that system will collapse without their contributions."