County Awaits Consultant Study of Pension Plan Options
This Fall the Board of Supervisors and County staff will receive a
consultant’s report outlining options for addressing the County’s $1.7
billion unfunded pension liability, and advice regarding how to put our
retirement plans on a more firm, long-term, financial footing. Public
pension plans are under increasing scrutiny across the country – the
combined effect of years of underfunding by some governments (though not
Fairfax), a retiree population that is living longer, and declining
rosters of current employees to pay the bill - and I eagerly await the
Fairfax County has three retirement systems : one for police, one for firefighters, and one for general employees. Most teachers are part of the Virginia Retirement System (a state entity). Fairfax’s plans are among the best managed and highly funded in the nation. However, the recent recession took its toll on the investment portfolios that keep the plans afloat, and we now have an unfunded liability that will not fix itself.
As recently as ten years ago our plans were funded at over 90 percent. Today, they are funded under 80 percent. In each of the last two years, the Board of Supervisors spent $20 million and $15 million respectively as part of its annual “Carryover Package” just to try to reduce the losses in the Plans. In each year these were the largest single carryover items, and these additional expenditures exceeded all the combined cuts in the Park Authority and Library Board budgets over the last two years.
Recognizing that our current Plans are unsustainable in the long run without adjustment, last year I urged my colleagues to act, and they agreed. The County commissioned a retirement study with the benefits consulting firm Aon Consulting. This study is placing extra emphasis on the defined benefits plan and the role retirement plans play in the county’s overall compensation package, but has multiple objectives, including:
1)Assisting the county in the review of its retirement benefits philosophy and the role of retirement benefits as part of a total compensation package.
2)The benefits adequacy of current design (i.e., what level of benefit is delivered through each of the three pension plans using several scenarios based upon participant demographics.)
3)Analysis of the differences between defined contribution and defined benefit models for public sector retirement plans. The study will also look at several types of hybrid designs.
4)Analysis of the impact of Virginia state law on our offerings.
5)Benchmarking against other jurisdictions, including those of similar size and demographics as well as those with whom we compete for talent.
6)Review of other benefit features currently found in our programs such as social security supplements, cost of living adjustment provisions and the county’s Deferred Retirement Option Program (DROP) as well as consideration of other potential benefit options.
7)Review of retiree medical trends and design as part of a total retirement model. Recognizing that the access to and affordability of medical care is a significant driver in retirement security, AON will analyze our current plan design and delivery mechanism in light of the current economic and regulatory environment.
Done in tandem with a study being completed by the county’s Retirement Agency, these two exercises can help guide the County to necessary, long term adjustments in its retirement programs. I hope the Board of Supervisors will have the courage to face this critical issue. We must keep our current commitments to our current retirees and employees. Equally important, we must not make commitments to new employees that we cannot keep. Now is the time to adjust our plans for incoming employees in a way to put our plans as a whole on a sound financial footing.