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Virginia eyes alternate plan
By Vineeta Anand Pensions & Investments …..
August 19, 1996
RICHMOND, Va. - Gov. George Allen's administration may recommend creating a defined contribution plan for Virginia state employees, giving participants in the $22 billion Virginia Retirement System a choice of staying put or moving to the new plan.
The results of a study on the matter are expected within the next several months. Virginia officials are studying initiatives and legislation in other states, and are analyzing the cost savings, if any, of a shift.
One reason Virginia and other states are contemplating shifting to a defined contribution plan is
cost. Virginia, for example, sets aside $14 million a year, or $32 per participant, just to administer the statewide pension system covering 271,000 workers and 80,000 pensioners.
If the study recommends creating an alternative defined contribution plan, legislation could be introduced as early as January and could become law by next July, said Lt. Gov. Don Beyer.
"It is a great benefit. People like having some control over their own destiny and it's good for morale," said Mr. Beyer, who has been offering a DC plan with selfdirection to employees of his Northern Virginia auto dealership for the past two years.
But if participants are offered the choice, it would have to be with the clear understanding that "if someone makes a bad (investment) decision, they have to live with that. The state can't be bailing them out," he said.
Nonetheless, it is too early to say what the outcome will be, said Planning and Budget Director Robert W. Lauterberg, who initiated the study a few weeks ago.
"We want to first determine ii this would be beneficial to state employees so we can attract and retain the highest caliber employees," he said.
"Some argue this would provide a superior option to certain employees, possibly newer employees who would want to select more aggressive investments."
At the same time, he insisted any attempt to set up an alternative plan would not result in a dismantling of the Virginia Retirement System.
"If we thought it would result in that, we would not be interested in proceeding with that," Mr. Lauterberg said.
VRS Executive Director William H. Leighty, in an Aug. 13 letter to Mr. Lauterberg, said the system had "deep reservations about participating in a 'confidential' study of such a controversial subject."
In fact, VRS outlined conditions under which it would give any data to Mr. Lauterberg. One condition was that the data-and Mr. Lauterberg's original letter requesting information-will be made public, Mr. Leighty said.
VRS also intends to charge Mr. Lauterberg's department for any information. The fund's actuary, Mr. Leighty wrote, will review the scenarios presented, discuss the reasonableness of the assumptions made by Mr. Lauterberg and report back with an estimate of the time and money it will take to prepare the information.
At least one of the nine VRS trustees, Edwin Burton, has long been an advocate of giving public sector employees such a choice. "Defined benefit plans are not portable. If you leave before age 65, publicsector plans usually strip you of employer contributions," he noted. Under the current system, Virginia offers employees who quit their jobs before retirement age a paltry 4% return on their contributions.
What's more, such plans are ' also good for taxpayers, because "a state can define its responsibility," Mr. Burton said.