Faced with flat tax revenues and looking for ways to trim the bloated county budget, Supervisor Lori Waters introduced a motion during the November 4th Board of Supervisors meeting which would have given the board the authority to trim a major expense – the Virginia Retirement System (VRS) contribution, which costs the county about $88 million a year.

VRS requires both the employer and the employee to contribute, but the county started paying the employee share (5% of salary) in 1983.  Ms. Waters’ motion would have made the 1983 policy revocable and given the board the option of requiring county employees to pay all or part of the VRS employee contribution.  Unfortunately, supervisors Miller, Burk, Kurtz, McGimsey and Buckley closed the door on that option by voting against the motion.

A lot has changed since 1983 when the current arrangement was agreed to, supposedly in lieu of a pay raise.  Back then, salaries were much lower than they are today and 5% represented substantially less money than it does today.  It is a cost that keeps on growing.  Every time an employee receives a raise, the contribution increases.  Defined-benefit pension plans like the VRS plan are rapidly fading away in America and are rarely offered outside of state and local governments, which have no profit motive and have been successful in passing the escalating costs on to taxpayers.  Even the VRS plan is considered very generous compared to other states.

It may come as a shock to taxpayers that Loudoun government and school employees contribute nothing towards their VRS retirement benefit.  That is indeed a rarity these days where most workers are fortunate to even have a retirement plan, let alone receive an employer contribution.  If an employer does contribute, it is often in the form of a matching contribution and is generally capped at 2-3% of salary - a stark contrast to the 14.89% LCPS automatically contributes for teachers.  In addition to the VRS plan, LCPS even offered a $20 per pay period 403b plan (the equivalent of a 401k) match in FY 2009 at a cost of $960,000.  The county also pays the employer social security contribution of 7.65%.

The VRS contribution is a major expense.  The county can no longer afford to shoulder 100% of the cost without a major tax increase.  In addition to the employee share of 5%, the county has always been required to pay the employer share, which varied from 8.22% to 9.89% in FY 2009 depending on job type.  LCPS contributed $8,938 for the average teacher.  According to the BOS meeting documents, just the county government employee (not including school employees) VRS contribution alone grew from $3.3 million in FY 2001 to $8 million in FY 2009.  Below is the total estimated VRS contribution by the county in FY 2009:

• County government employee share - $8,063,974
• County government employer share (estimated) - $13,257,173
• LCPS employee share (estimated) - $23,184,663
• LCPS employer share (estimated) - $44,050,860
• Total - $88,556,670

The cost of administering the VRS plan keeps growing.  VRS sets the contribution rate every year and members are forced to pay, no matter how high it is.  In FY 2009, VRS took in a staggering $2.1 billion in member contributions.  The VRS investment portfolio suffered heavy losses with the stock and real estate market downturns in the past few years.  It was announced that the contribution rate will have to increase to make up for the loss.  LCPS Superintendent Edgar Hatrick announced in a recent County of the Whole meeting that it could cost the school system an additional $20 million in FY 2011!  Of course, the plan is to pass that cost on to the taxpayers with a higher tax rate.

Supervisors would rather not reduce benefits for county employees, but most realize that under the current budget crunch, cuts in employee costs will have to be made.  It will be a tough choice between cutting salaries and benefits or removing employees from the county payroll.  The authority to discontinue or reduce the VRS employee payment would have been an option to avoid the latter.