Mayor’s Commission on Pension Liability Assessment Issues Report
Mayor Dwight C. Jones today received the report of the Mayor’s Commission on Pension Liability Assessment. Key findings included recommendations to:
1. Continue the City’s long-standing practice of fully funding the actuarially required contribution to the Richmond Retirement System (RRS), as recommended by the actuary;
2. Consider adjusting the employer and employee contributions for current and future employees;
3. Consider realigning the pension benefit structure for senior-level employees including the vesting period to match the term of office of elected officials; or,
4. Consider moving senior-level employees to the Virginia Retirement System, both to reduce costs and to increase the pool of potential employees.
Commission Chair Robert M. Blue said that the RRS Board appeared to be a good steward of the pension system. “The investment performance in the RRS portfolio is excellent, and the Board has plotted a course that will re-build its funding ratios in the foreseeable future.”
The pension system’s funded status is less than adequate (58.6% versus a benchmark of 70%); in part due to recent economic declines. However, the City gets high marks on paying the annual actuarially required contribution recommended by the actuary, and for maintaining its pension liability at a relatively low percentage of the City’s operating budget (5% as compared to a 10% benchmark). The RRS Board has also recently reduced its investment earning assumptions, which is a fiscally conservative move. Bond rating analysts balance these factors, along with the fiscal health of the City’s finances as a whole. Strong reserves in “rainy day funds” are considered to be one of the City’s top fiscal goals.
The Commission also noted that the City had taken a big step to control costs in 2006. At that point, it ended its pension (Defined Benefit) system for new general employees, and offered a Defined Contribution plan in its place. “It is important for the City and the Retirement Board to continue to look for cost controlling measures for its retirement program, just as the state, other governments and the private sector are doing,” said Ronald L. Tillett, Commission member and Chair of the RRS Board. “The RRS benefits need to help attract and retain employees, and be managed in a way that protects employees’ and the City’s assets.”
The Commission also found that the City’s pension benefit to senior executives appears good in concept, but has become an illusory benefit. Without the protections of classified employees, senior executives serve at the pleasure of elected officials who have four-year terms. Yet, the pension plan provides benefits only after the employee has five or ten years of service. These provisions worked under the City Manager form of government, but are less realistic under the current system, with four-year terms for all governing officials and a Mayoral two-term limit.
In addition, when local independent retirement systems offer benefits that are different from those obtained from the Virginia Retirement System (VRS), recruitment and retention of workers from the state or other local governments can be negatively affected. VRS serves 829 political entities in the state. Only ten localities have independent retirement systems, including Richmond.
In accepting the report of the commission, Mayor Jones reiterated some of the reasons for asking for review. “It is paramount that the City of Richmond keeps its promises to its employees in regard to their retirement benefits. My goal is to make sure that the pension obligations to our employees are being met. In addition, I asked for a look at how the City can enhance its ability to attract and retain a highly qualified workforce. This commission met my expectations for its work, and has given me and City Council good guidance on potential next steps.”
Members of the Commission included: Robert M. Blue (Chair) (Senior Vice President – Law, Public Policy, and Environment, Dominion Resources), Regina J. Elbert (Senior Counsel, Dominion Resources, and formerly of McGuire Woods), Jerry P. Fox (Cherry, Bekaert & Holland), Marcus D. Jones (City Manager, City of Norfolk), Ronald L. Tillett (Managing Director, Investment Banking, Morgan Keegan & Company, Inc.), and Jody M. Wagner (former Virginia Secretary of Finance).