Albemarle County, schools bite the bullet on state mandate to increase pension contributions

 Both Albemarle County and the county school district are going full speed ahead on funding a new state mandate that gives to public employees with one hand and takes with another—but not without some griping.

New pension reform legislation passed just before the end of the 2012 legislative session requires public employees covered by the Virginia Retirement System to contribute 5 percent of their salaries toward their pensions, and also demands their employers give them 5 percent raises.

Last-minute adjustments to the bill made by Governor Bob McDonnell gave municipalities the same option schools had to phase in the increase, and originally, it looked as though the county might go that route. On the surface, a phase-in seemed to make financial sense, officials said: Start with a small raise to match a 1 percent contribution increase the first year, and then make yearly increases to meet the 5 percent requirement as soon as possible.

But that approach came with its own challenges, and at a County Board of Supervisors work session last Wednesday, the supervisors agreed to join the Albemarle County School District in funding full 5 percent raises for employees starting July 1.

“The biggest reason that the phase-in was problematic was administrative,” said County Supervisor Chris Dumler. Per the statute, newly hired employees will have to start paying 5 percent of the pension costs right away, and must be compensated accordingly, whether their longer-serving colleagues were being phased in or not. That would mean two different pay structures, which would be “an administrative nightmare for HR,” Dumler said.

“The other big issue is this Cold War race-to-the-bottom kind of thing with market competitiveness,” he said. If other parts of Virginia—especially other counties’ school districts—chose to jump straight to the full 5 percent increase while Albemarle ratcheted up slowly, it could put the county at a competitive disadvantage when it comes to hiring top talent, even if other districts and municipalities might seem to offer better pay on paper only.
One thing that’s certain, he said, is that nobody’s happy about the new law.

“The system’s not solvent,” Dumler said. “People have to pay into it. That’s one thing.” But what looks at first glance like a wash—employees pay more, and are paid more, thanks to taxpayers—really isn’t, he said. That’s because both municipalities and their employees have to pay Social Security and Medicare taxes on their full salary with the new “raises”—even though the entire increase is going straight to workers’ pensions, not their paychecks. As a result, the new rules deliver an effective paycut. In short, Dumler said, nobody’s happy—except the federal government, which sees a little more revenue for its struggling social services funds.

“This was the most expensive way to skin this cat, and it’s frustrating that they’d sign off on this route at the state level even though it’s not a real benefit for them,” he said. “I have not heard any local government officials say that this was the right way to solve the problem.”

Albemarle County Executive Thomas Foley said the $355,000 in initial unexpected salary increases would be covered this year with one-time funds, but that he his staff believe the county can incorporate the higher pay into the budget starting next year.

“The question is, are we putting the fund balance at risk?” he said. “And we don’t think we are.” Funding the “fake raise,” as some elected officials have branded it, will be a top priority, said Foley.

“We feel confident that our revenues are going to grow well beyond what we need,” he said.

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