JLARC Report on VRS

Rob Jones from VEA heard a recent JLARC presentation on VRS and its future. I'm copying the exact email Rob sent out in the hopes that you will have accurate, concise information. Keep in mind that JLARC is an audit and review committee. They do NOT create policy. However, they are listened to and respected in the General Assembly.

October 14, 2008

The Joint Legislative Audit and Review Commission presented their report entitled "Options for Total Compensation" on October 14th. The commission staff was doing what was asked of them, and we should not kill the messengers, but it is what we feared.

Before I summarize the implications of the report for school board employees, let me first expose a major flaw in the report when it is viewed from the public education perspective. For the state employees, the options were developed in the context of their total compensation package (salary, leave policies and health benefits). This was not true for school board employees. I thank Senator Edd Houck for pointing this fact out to his fellow commissioners.

The options contain new target salary goals for state workers, and leave purchase plans. In short, for state workers, there is sugar with the medicine. School board employees only get the medicine.

I'll try to summarize the options which will affect school board employees/VEA members.

First, it is important to understand that none of these options will affect folks who are already retired. The recommendations related to VRS are labeled "R" for retirement.

R1 - Impose an additional 2% employee contribution. This would be in addition to the 5% employee contribution now paid by your employee who also pays the employer contribution. This 2% might be phased-in .5% at a time in years when raises are granted.

R2 - Change the Cost of Living Adjustment (COLA) on retirement benefits by capping the increase at 4% a year rather than the current 5%. FYI - if, for purposes of illustration, you retroactively applied this change in the COLA to one who retired in 1978, the reduction in benefit would be 6% over the first 10 years and 12% after 30 years in retirement.

R3 - Increase the minimum retirement age for non-vested and new hires from 50 to age 60. Note: One becomes vested in VRS after five years of service.

R4 - For new and non-vested employees replace the Retiree Health Insurance Credit with Integral Part Trust (IPT) Accounts.

R5 - For new hires and non-vested employees combine a defined benefit (DB) and defined contribution (DC) plans. The DB plan would have a lesser benefit than the current VRS benefit. Employees would contribute to both. The COLA would only be included in the DB plan. This plan would provide 85% of the benefit in the current plan.

R6 - Require a Cash Balance Retirement Plan for new hires and non-vested employees. This is like a traditional defined contribution plan, except for the fact that a 5% return is guaranteed. Employees contribute with an employee match that increases with years of experience. There is no COLA on benefits. Entire balance can be withdrawn when separating from service.

R7 - Require a Defined Contribution Plan for new hires and non-vested employees. The matching contribution from the employer would increase with years of service. No COLA would be provided and the entire balance could be withdrawn when separating from service. Only two states now have this. The plan would provide 52% of the benefit value of the current VRS plan.

These options are not consistent with VEA's positions. As we await specific legislative proposals we will need your help with educating your colleagues regarding what looks like a battle ahead.

I have done my best to offer a concise and factual summary of the options that will affect school board employees. Additional information will follow.

Thank you,

Robley Jones

VEA GR