By Paige Winfield Cunningham
Pension payments are lighter for Virginia schools as they struggle through the recession, but some district officials say delaying contributions will come back to bite them.
Last spring, the General Assembly excused school districts from contributing to teacher pensions during the months of April, May and June. Legislators also lowered the amount schools must contribute to teacher pensions over the next two years.
Instead of paying into the pension fund an amount equaling 16.5 percent of each teacher’s salary, districts will contribute only 8.93 percent in 2011 and then 10.16 percent in 2012.
In Fairfax County, that means the district will spend about $85 million less on pensions than usual this year, according to data from Chief Financial Officer Susan Quinn.
Reducing pension contribution levels helps out schools in the short run, but leaves them with even more to pay back in the long-run, says Maury Brown, communications coordinator for Albemarle County Public Schools.
Brown says it’s also a move that improves the state’s image, by allowing it to claim fewer budget cuts. The state cut $2.4 million from Albemarle County this year.
“It’s sort of a borrowing from Peter to pay Paul tactic,” Brown said. “At some point, that money is going to have to be added into the system.”
No one yet knows what how much contribution rates will increase for school districts when payback begins in 2013. That year, the state has promised to begin paying back—including 10.5 percent interest—the $620 million legislators withheld from the state employee and teacher pensions.
Schools will get a better idea in November when the Virginia Retirement System releases the contribution rates projected for the payback period, says Jeanne Chenault, VRS public relations director. But what’s certain is this: they’re bound to rise above 16.5 percent as the state not only tries to make up the deferred contributions, but also the interest they would have earned.
“I think the projections that are being looked at are going to increase in the future,” Chenault said.
Higher contributions will be needed to fill an unfunded hole in teacher’s pensions that’s deeper than before. The pensions were funded at 76 percent in 2009; that’s dropped to an estimated 67 percent this year.
State Sen. Walter Stosch, R-Henrico, said Virginia’s pension funds are experiencing problems on both ends: contributions and earnings. The state is putting in too little and expecting too much in return, he said. This summer, the VRS lowered its long-range expectations for investment performance from 7.5 percent to 7 percent.
“One, we have reason to believe the rates are unrealistically low, and two, we have information that the VRS earnings are less than what have been anticipated,” Stosch said.
Some officials and lawmakers touted school pension relief as “savings,” a characterization that bothers Stosch.
“It was troubling to some of us to hear they saved money,” Stosch said. “They just deferred into the future.”
Susan Quinn says that because the Fairfax School Board expects contribution rates to rise in the future, members had $45 million set aside this year specifically for VRS payments. She says 2013 is the year of reckoning.
“The year that’s really going to hit everyone is 2013,” Quinn said. “That’s when the repayment is going to start based on the state’s budget. The only direction it could go is up.”
