Each year the House and Senate pass different versions of the Commonwealth’s budget in the first month or so of the Assembly meeting in January and February of each year. In the odd years, the budget is a two-year proposal, initially prepared by the Governor at the end of his first year in office.
Last year in January, Governor McDonnell could only offer amendments to the first year of the two-year budget prepared by outgoing Governor Tim Kaine. This year, McDonnell could offer amendments to the second fiscal year of the Budget initiated by Kaine. In December 2011,Governor McDonnell will present the first two-year state budget of his 4-year term.
The Budget is then introduced in the House of Delegates as House Bill 1500, and as Senate Bill 800. As each house considers its bill, separate priorities begin to emerge. This year, the House gave more priority to addressing the state employee retirement system, while the Senate placed less priority on the retirement system and more emphasis on funding public education.
In neither case is the retirement system fully funded. To address the shortfall, last year, because of the sharp decline in value of the retirement plan known as the Virginia Retirement System, the House suggested a change to the long-time policy of paying for employee retirement as a substitute for salary increase (known as a “defined benefit” plan).
Since 1983 the state had paid the amount necessary to keep the Virginia Retirement System (VRS) solvent and fully funded in order to ensure that each employee hired before January, 2010, would possess a fully funded retirement plan in exchange for a taxable increase in pay. However, when the decline in value of the VRS occurred, because of the general economic downturn, new state and local employees were offered a retirement plan known as a “defined contribution” plan.
For local governments who also participated in VRS, they could require new hires to pay into the defined contribution plan-or they could make the payment themselves from local tax dollars. Many localities initially chose the latter, but the change from defined benefit to defined contributions plans appears to be the wave of the future.
The latter plan will offer employees the opportunity to create and control their own retirement funding by paying into a fund similar to an individual retirement account (IRA) that would be at least partially matched by the Commonwealth, but controlled by the employee. For employers, it offers the opportunity to control retirement costs-a very valuable opportunity.
Delegate Scott represents the 53rd District in the Virginia House of Delegates. He may be emailed at firstname.lastname@example.org