Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SATURDAY, December 17, 1994 TAG: 9412190041
SECTION: CURRENT PAGE: NRV-1 EDITION: NEW RIVER VALLEY
SOURCE: From staff and wire reports
DATELINE: RICHMOND LENGTH: Medium
The New River Valley, with Virginia Tech and Radford University, has one of the highest concentrations of state employees. Its 9,000 state employees make up 16 percent of the valley's work force and account for 21 percent of the annual yearly pay. This number does not include teachers who are also covered by the retirement system.
Trustees with the state retirement system said Thursday that the proposal, driven by an anticipated surge in the number of retirees that will drive up costs, could anger the 260,000 state employees, judges and teachers enrolled in the $16.1 billion VRS.
``I don't think anybody would agree with it,'' said trustee Donald L. Cahill of Prince William County. ``When you start reducing something they had, you create a morale problem.''
The General Assembly must sign off on the proposal.
``We will address it,'' said Senate Finance Committee Chairman Hunter B. Andrews, D-Hampton. ``How? I can't tell you that right now.''
The retirement system board offered nine alternatives for financing the long-term cost-of-living adjustments. Most of them would mean smaller contributions by the state, or delaying or capping increases for the next wave of retirees.
The options, which would not affect 70,000 current retirees, would allow Virginia to ``prefund'' cost of living adjustments - in essence, pay them in advance - and abandon a pay-as-you-go approach that is causing a cash drain.
Under the pay-as-you-go approach, Virginia spends more than $120 million per year on these adjustments. The annual figure could exceed $165 million in the next, two-year budget cycle.
Prefunding could cost $526 million per year, though it would drop sharply after 27 years, according to a legislative study.
The retirement system's private actuaries said prefunding could run from $200 million to $250 million for state workers, $350 million to $430 million for teachers, depending on interest rates, salary increases and other factors.
Donald L. Overholder, an actuary with Buck Consultants, told trustees that the advantage of prefunding is that ``you level the cost out and preclude having to pay for these big, big increases in the future.''
Virginia bases cost-of-living adjustments on a formula driven by the consumer price index, an annual measure of inflation that's running about 3 percent.
In contrast, most private pension funds don't automatically boost benefits, choosing instead to periodically adjust them.
Gov. George Allen's plan to cut government employment - he has promised to slash 16,000 jobs or more - could increase financial pressure on the retirement fund.
Though the reductions could free up cash, they would also mean fewer workers would be paying into the system. Officials said that could force up contribution rates for employees and the state.
Currently, employees contribute 5 percent of salary toward their retirement. The state match ranges from about 4 percent to 6 percent, depending on job category.
by CNB