McDonnell also wants to offer employees the choice of a hybrid plan combining a 401(k)-style defined contribution system with a defined benefits program, and to change the formula for cost-of-living adjustments, the Richmond Times-Dispatch reports.
McDonnell told workers that after reviewing financial projections and meeting with advisers, “the simple truth is our state retirement system cannot be stabilized absent increased contributions from both employer and employee.”
State workers’ contributions would increase from the current 5% — which was established last year and offset by a 5% pay raise — to 6%, rising 0.5% in each of the next two years, according to the Times-Dispatch. “It is my intent that the impact of the additional employee contribution of 1% will be more than offset in fiscal year 2013 by my proposed performance bonus of up to 3%,” McDonnell wrote in a memo to state workers sent before a public announcement on Thursday.
His plan would also calculate a worker’s average final compensation over 60 months, rather than 36.
The news report said McDonnell’s recommendations come on the heels of a report by the Joint Legislative Audit and Review Commission, whose staff strongly discouraged any proposal to increase the employee share of retirement contributions. The governor and legislature withheld more than $620 million in state contributions to the pension fund to balance the current two-year budget that ends June 30, adding $1.6 billion to unfunded long-term liabilities for state employee and teacher pensions, the report states. The plan is underfunded by roughly $19 billion.McDonnell said Thursday that he’s not concerned that the plan changes would hurt recruiting. He said the state will still have a “very favorable retirement system.”
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