Changes to Virginia Retirement System: On the Right Track?

Virginia Gov. Bob McDonnell recently approved sweeping changes to the Virginia Retirement System (VRS) while proposing several technical amendments to related bills. Changes include reduced pension benefits for employees with less than five years of service and an entirely new type of retirement plan for state and local employees hired after Jan. 1, 2014.

The changes, included in HB 1130, consist of three components:

• Changes in benefits effective Jan. 1, 2013 — including changes to requirements for years of service before retirement, the average final compensation and multiplier used to calculate benefits and a 3 percent per year cap on cost-of-living adjustments — for state and local employees hired since July 1, 2010, and current employees with less than five years of service
• Creation of a mandatory hybrid plan for all state and local employees hired on or after Jan. 1, 2014, except for hazardous-duty employees such as police and firefighters, that will combine reduced pension benefits and a 401(k)-style contribution plan
• A statutory commitment for the General Assembly and Governor to gradually adopt the same method of calculating retirement rates for teachers and state employees as the VRS Board of Trustees, with a requirement that the state must fully fund the VRS rates by 2018–2020

Click here to read more details on the changes at VSCPA.com. For more information, read an opinion article in Virginia Business magazine from VSCPA member Jim Shepherd, CPA. Bond-rating agency Moody's Investor Services said the reforms were "credit positive" (PDF).

What are your thoughts on the changes? Is Virginia on the right track to maintain control of its finances?