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VRS scene: The politics of pensions
JEFF E. SCHAPIRO
TIMES-DISPATCH COLUMNIST
Contact Jeff E. Schapiro at (804) 649-6814 or jschapiro@timesdispatch.com
Long before the Enron debacle and the high-decibel response by Congress, the gang at the state pension fund huffed and puffed over the appropriate role of workers in planning for retirement.
The comparatively low-key debate at the Virginia Retirement System featured two of its more colorful figures: Edwin T. Burton III of Earlysville, a former chairman, and W. Gordon Binns Jr. of Richmond, who died April 4 and once ran the VRS investment committee.
That Burton is a Republican and Binns was a Democrat lent a partisan dimension to the tussle, which occasionally played out in the newspapers.
But confining this issue to what Gov. Mark R. Warner refers to as "D's and R's" wrongly oversimplifies one of the more interesting questions confronted by VRS since sweeping reforms in 1994.
Burton, an economics professor at the University of Virginia, was - and remains - a fierce advocate of do-it-yourself pensions. Known as defined-contribution plans, they require that employees actively manage their retirement savings and adjust their portfolios, if necessary, in response to the gyrations of the market.
An example of a defined-contribution plan: the corporate 401(k), which, in the case of Enron and more responsibly run firms, is supported by company stock.
Binns, retired chief of the General Motors retirement fund, favored the traditional, paternal approach to pensions, backing defined-benefit programs. These are pensions that for Virginia public employees are set by law, are driven largely by workers' final salaries and rest entirely on the investment decisions of financial professionals.
With $35 billion in assets, VRS is among the biggest defined-benefit plans in the country, paying fixed pensions to more than 100,000 retirees. An additional 200,000 public employees are readying for retirement through VRS.
However, the state fund operates several very modest defined-contribution plans for school principals and political appointees, workers who, because they can change jobs frequently, may prefer to take their retirement savings from one job to the next.
Portability was one argument advanced by Ed Burton in pressing for an optional defined-contribution program for all employees. Another was the notion of empowerment, that, risks notwithstanding, workers should be full partners in planning for retirement.
That, however, was the foundation of Binns' opposition.
With an analytic style that bordered on the academic, Binns contended that experience showed that the vast majority of employees knew little about the ways of the stock and bond markets and that few could stomach their volatility.
Thus, Binns favored a safety-in-numbers approach, that workers banding together in defined-benefits arrangements are potentially better protected than colleagues who, in effect, go it alone.
The bottom line, however, in the fight is just that: the bottom line.
Potentially, self-managed pensions aren't as costly as defined-benefit plans. That's because if you use Virginia as an example, the state would be responsible only for the dollars it directs toward an employee's pension. Under the current system, VRS is liable for contributions, principal and interest. So, if the fund went out of business, it could be on the hook for billions.
But VRS and beneficiaries are learning there are other risks associated with the status quo.
Even after moving to depoliticize the fund, the General Assembly can't resist playing politics with it. This year, lawmakers, with Warner's consent, seized millions in unclaimed pensions to help plug a $3.8 billion hole in the state budget.
It was the kind of move that Burton and Binns would agree raises troubling questions.
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Contact Jeff E. Schapiro at (804) 649-6814 or jschapiro@timesdispatch.com
This story can be found at : http://www.timesdispatch.com/news/columnists/MGBNHT3500D.html