The Virginia Retirement System is beating benchmarks and cutting costs, but many of its newer members are not fully benefiting from the moves, according to a report presented to lawmakers on Monday.
Younger state employees and teachers who accepted their job after January 1, 2014 are mostly added to VRS’ newer, so-called hybrid plan designed to cut back on the state’s pension bills.
The hybrid plan works best for employees when they set aside a chunk of each paycheck towards retirement. But almost half of state employees on the new plan are saving less than 1% of each paycheck. That could mean their piggy banks will run dry faster when these younger employees, many of them teachers, hit retirement age.
VRS director Trish Bishop told the legislature’s oversight committee, the Joint Legislative Audit & Review Commission (JLARC), that the majority of employees who did set aside more than the automatic 0.5% of their paycheck seemed to grasp the importance of saving, and chose to maximize their contributions at 4%.
“Our challenge is getting [employees] hooked and on board with that voluntary savings,” Bishop said.
The state could decide to bump up the automatic amount that employees set aside, but that comes with a price tag. It currently bumps up that amount half a percentage point every three years; employees can choose to opt out of that program.
VRS’ leaders painted a largely optimistic view of the fund’s performance, which remains ahead of all benchmarks in spite of a volatile year on the stock market. The fund has saved approximately $52 million in fees by managing funds internally, according to the report.
