Protect Your Retirement Security… Before It’s Too Late

ALERT! Lawmakers in Richmond are considering changes to the Virginia Retirement System that could drastically cut the value of teachers’ pension benefit. How serious is this? One proposal that is likely to be considered is replacing the guaranteed pension with a ‘Personal Risk’ account for new employees— a change that could result in a 48% reduction in benefits. Every school employee who participates in VRS has a stake in making sure the system is funded and that benefits are not cut.

Why are changes to VRS being considered? Questionable claims and dubious ‘facts’ are being used by individuals seeking to cut government costs. Claim: The unfunded liability of the VRS means the system is “in crisis,” so employees must bear more of the burden of funding it. FALSE Claim: A “Personal Risk” account (e.g. 401k), in which employees invest their own money in the stock market, will provide an adequate retirement benefit. FALSE 3

The teacher fund within VRS is 65% percent funded. The unfunded liability is $17 billion. But…the actuarial horizon for the unfunded liability is 85 years. Plenty of time for the state to make payments to properly fund the plan. The value of the fund declined to $43 billion in 2009 during the recession—and is now back to $50 billion. 4 VRS is Not ‘In Crisis’

The State Has Not Paid Its Share Every two years, the VRS sets the rate necessary to properly fund the VRS. The state has failed to fund that rate 17 of the past 20 years—in good economic times and bad! ”The problem with VRS is that elected officials have chronically underfunded the system—and now they want someone else to clean up their mess.” — Richmond Times-Dispatch editorial, There is ample time to build up the funding status of VRS, but it requires that the state do its part. 5

Employees are Not the Problem! The average annual benefit for a retired teacher is $20,814. That is not a windfall! Virginia pays a much smaller share of its budget to fund VRS (1.65%) than the average of other states (3.80%). The truth: The current guaranteed pension provided through VRS is adequate, not a luxury. It properly rewards teachers for decades of public service in the classroom. And Virginia can afford it. 6

About Those ‘Personal Risk’ Accounts You currently have a “Defined-Benefit” (DB) pension plan through VRS. That means that you can count on a guaranteed income stream from the time you retire until you die. Some are proposing that teachers should instead have a “Defined-Contribution” plan, like a 401(k). We call this the ‘Personal Risk’ plan. Why? Under a personal-risk plan, you would be responsible for making your own investments with the employer contribution. Your income stream during retirement would depend on how well you invested your money. If you did not invest well, or if you lived to a ripe old age, your income might run out. So you would bear the risk of building a large enough nest egg to live on during retirement. 7

DC or ‘Personal Risk’ Accounts Fall Short In 2008, Price WaterhouseCooper estimated what a Virginia teachers’ pension would be worth if they received a DC plan rather than a guaranteed DB plan. Answer: A 48 percent reduction in benefit! ”Median income for a household headed by a person ages with a 401(k) had less than 25% of the amount needed to maintain their standard of living in retirement.” —Wall Street Journal, DC or ‘Personal Risk’ plans simply do not guarantee your retirement security. 8

Advantages of Your Traditional DB Plan Through VRS Guaranteed Predictable. Based on formula 1.7% x average salary x years of service Includes annual COLA Survivorship benefits Disability coverage 9

VEA’s Position on VRS ”The VEA supports the continuation of the Virginia Retirement System (VRS) as the primary benefit plan for Virginia public education employees, and opposes the establishment of any alternative defined-contribution plan which would undermine the VRS.” -- VEA resolution in support of the continuation of VRS as the primary benefit plan for Virginia public education employees. First adopted January 1999, last revised August

Take Action to Protect Your Pension Get informed. We will provide updates on the fight over pensions at Become a cyberlobbyist. We will you updates as they occur. Sign up at Invite your colleagues and co-workers to join us. Attend VEA Lobby Day, January 23,

The only organization fighting for your rights! Protecting and Promoting the Education Profession 12