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Thursday, August 8, 1996
VRS pension alternative under study
Workers could direct own plan
BY JEFF E. SCHAPIRO
Times-Dispatch Staff Writer
State employees could tailor their own pensions -- rather than leave them to the Virginia Retirement System -- under a study quietly launched by the current GOP administration.
Workers could opt for a new self-managed plan or stick with the current program under which they collect a retirement benefit established by law and administered by the VRS.
''Choices are always better for people,'' said the planning and budget director, Robert W. Lauterberg, who initiated the study.
TWO PLANS
* Defined-benefit
Is one set by law. It is the plan used by the Virginia Retirement System for its 70,000 retired local and state public employees. It is expensive, and the liability to the state is enormous should the VRS collapse.
* Defined-contribution
Employees would craft their own retirement accounts, which presumes some familiarity with financial markets because workers choose investment options. This can mean big savings for employers because they only have to match worker contributions.
Virginia isn't the only state to consider or adopt the self-managed option, which is available in the private sector through employer-sponsored 401(k)-type savings plans.
Other states include California, with the biggest public pension plans in the nation; Washington, Colorado and West Virginia.
The proposal -- floated by a Republican administration that some consider hostile to state workers -- could be a volatile employee issue.
It comes down to money: Self-managed pension programs have been touted as a way to save taxpayers millions.
But worker groups are skeptical. And even the pension fund, which manages $22 billion in assets on behalf of 75,000 retired local and state employees, urges a go-slow approach.
''They have been burned a couple of times, and my guess is that (retired public workers) would be leery of such a study,'' said Pleasant C. Shields, a retired Parole Board employee who lobbies for the Virginia Governmental Employees.
Edwin T. Burton III, a VRS trustee and outspoken advocate of self-managed retirement plans, welcomed the study but had some advice for the administration:
''In order to be successful, to have a truly voluntary system for employees, I would hope that this would be a bipartisan effort.''
Lauterberg, emphasizing that the study is preliminary, said the Democratic-dominated General Assembly and state employees would have a say in the development of a self-managed program.
''We are only interested in this if it is an option for state employees and does nothing to take anything away from state employees,'' he said.
Still, Shields said employees fear it would be a first step toward a wholesale shift in benefits.
''They would be very, very skeptical,'' he said.
A self-managed, or defined-contribution, plan would require government employees to weigh the risks and benefits of making their own investment decisions.
Defined-contribution programs are often portable; workers can take their money to another plan when they change jobs.
With a defined-contribution plan, the state would be virtually free of all responsibility for paying for retirement -- except matching contributions. As a result, millions of tax dollars could be available for other projects.
The current program, a so-called defined benefits plan, is an expensive proposition for the state.
Virginia is liable for monthly payments as well as the multibillion-dollar portfolio that covers benefits.
Another expense involves automatic cost-of-living increases, tied to the rate of inflation, that are being paid five years in advance and will hit $75 million in the next two-year budget cycle.
Developing a self-managed option for Virginia workers could prove a windfall for Wall Street. Financial services firms could angle to manage millions in assets -- and collect handsome fees, to boot.
The VRS, the nation's 32nd largest public retirement fund, has been a political football since 1990, when the system bid for RF&P Corp. The acquisition triggered federal and state criminal investigations.
Federal prosecutors who led the investigation eventually refused to seek indictments and Virginia Attorney General James S. Gilmore III last week said the statute of limitations had expired in the case.
Some feared that the Lauterberg study of a defined-contribution plan would fall prey to politics, coming a year before the election to choose a successor to Republican Gov. George Allen.
And with such politically muscular groups as the Virginia Education Association closely following salary and benefit issues, the administration apparently recognizes the sensitivity of its study. Indeed, knowledge of the study was closely held, and Lauterberg seemed surprised when asked about it.
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© 1996, Richmond Newspapers Inc.