TO: VACo Compensation and Retirement Steering Committee
FROM: Erik C. Johnston, Director of Government Affairs
SUBJECT: VRS status report to JLARC: shifting of unfunded teacher pension liabilities to localities continues to be a top concern for VACo
Copy: VACo Finance Steering Committee, County Liaisons, County Administrators
VACo Compensation and Retirement Steering Committee:
I’m honored to join VACo’s legislative team and look forward to working with you as I serve as your new lead lobbyist on compensation and retirement issues. I will also cover community development and planning issues. I have provided my contact details at the bottom of this email. Please feel free to contact me at any time. Please also hold Aug. 16-17 on your calendar for VACo’s summer meeting. This committee will meet on Friday, Aug. 16 from 3 p.m. – 4:50 p.m. at the Richmond Marriot West.
Yesterday VACo staff attended the Joint Legislative Audit and Review Commission (JLARC) Meeting which included updates on the overall system status of the Virginia Retirement System (VRS). The major items of note for counties were details regarding the overall size of additional funding needed to maintain Virginia’s pension reform commitments and the scale and impacts of shifting unfunded teacher pension liabilities to localities.
Virginia Retirement System Director Robert P. Schultze said that the General Assembly and next governor will need to come up with an additional $160 million a year or $320 million total for the two-year budget that must be adopted in 2014. This additional funding requirement may crowd out other funding priorities in the next state budget.
Most worrisome for counties were the details presented regarding unfunded teacher pension liabilities. Local governments and the state share responsibility for paying the cost of teacher pensions, but under GASB 68 localities will have to claim all unfunded liabilities for teacher retirement plans after June 15, 2014. VRS reported that this unfunded liability stands at around $15.2 billion in Virginia and it is estimated that this shift in liability to localities will cause around 2 percent of localities nationwide to be downgraded by bond rating agencies.
VRS also provided a breakdown on page 33 of its presentation to JLARC of the unfunded teacher pension liability for the state’s largest ten localities. VACo advocated for the state to pick up its share of the unfunded teacher liability in this past year’s legislative session. The VRS reported numbers on the size of the unfunded liability and potential impacts strengthens VACo’s case that this liability shift must be fixed. VRS Director Schultze is scheduled to speak at the VACo Compensation and Retirement Steering Committee Meeting on August 16 during VACo’s Summer Meeting (by clark). He will provide an update on the unfunded liability issue and its impact on Virginia counties. An article in today’s Richmond Times Dispatch provides a summary with more background on pension reform in Virginia.
The reporting on VRS performance was one bit of good news. VRS achieved returns of 11.2 percent in the most recent reporting period, increased the diversity and funding for their asset allocation since 2005, and approved a new Investment Policy Statement. The performance puts the retirement system just short of the $58.3 billion it was worth in 2007, before the recession sent investments plunging to a low of $42.6 billion two years later.