The report clearly makes the point that reducing retirement benefits will harm the ability of Virginia to attract and retain high quality personnel.   The JLARC reminded legislators of the purpose of the VRS, to:

    Recruit prospective employees,
    Retain employees in the State workforce, and
    Allow employees to retire at an appropriate time and with adequate income.

The report offered a clear and concise explanation of why VRS has an unfunded liability of $19.9 billion dollars - investment losses on 21% in fiscal year 2009, and "Since 1992, the State employee's plan rates have been fully funded in only four years, and the teachers' plan rates have been fully funded in only two years."  To address this, "the report recommends that the Code be amended to identify a minimum acceptable funded ratio for each VRS defined benefit plan."
 However, the report does offer options for reducing the state's long-term costs to the state and local governments.  JLARC says these options "could be considered":

    Basing the Average Final Compensation (AFC) calculation on the highest 60 months rather than the highest 36 months.  This AFC calculation is currently in place for those hired after July 1, 2010.
    Decrease the benefit multiplier from 1.7 percent to 1.6 percent for new hires.
    Cap Cost of Living Adjustment (COLA) at 3% (currently the cap is 5%).  This option would not apply to existing retirees or those within five years of full retirement eligibility.
     For newly hired and existing employees who choose to retire early and qualify for a reduced benefit, the COLA would be deferred until they reach the age at which they would have been eligible for an unreduced benefit.

One option, increasing the employee contribution rate to 7% from the current 5% was discussed as were other schemes to increase the employee contribution,  but none were included in the "could be considered" list.  In this regard, the report states that, "Increasing employee contributions could result in increased turnover due to a negative impact on job satisfaction.  Mercer's assessment of these options are [SIC] that they would negatively impact the State's ability to retain existing employees."
 The report says, "The defined benefit retirement plans the State provides are competitive and are achieving the goals identified for State and local government plans."  It goes on to say that Defined Contribution (DC) or a combination plan could be offered as an option.  "Both of these alternative plan designs discussed in the report have a defined contribution component....  Considering the State's uncompetitive salaries on average generating sufficient savings could be a challenge for many employees."
 VEA's input was acknowledged on page 19 of the report:  "The defined benefit plan is also essential in retaining qualified school teachers, according to interviews with staff from the Virginia Education Association (VEA) and groups of teachers interviewed by JLARC staff. VEA staff stated that the defined benefit plan is a crucial aspect of compensation for Virginia's teachers because it is perceived as compensating teachers for their relatively low salaries, compared to other public sector jobs in Virginia and to teachers' pay in other states. According to VEA, the current plan is a 'lynchpin' for the profession, and making changes to the benefits, including the creation of an optional alternative plan, could have a negative effect on teacher retention and quality. Most of the teachers interviewed for this study also said that retirement benefits are influential in their decision to keep working as a public school teacher."
 The report emphasizes the level of replacement income generated as a measure of the adequacy of a retirement system.  Generally, 80% replacement income is an acceptable target for an individual's retirement plan.  One's VRS income when added to Social Security and other savings should add up to 80% of one's salary at the time of retirement.  However, low income employees need a higher level of income replacement, as a greater portion of their pre-retirement income is devoted to basic living expenses.  The needed income replacement for someone making $20,000 is 99%, while the level for someone making $80,000 is 79%, according to Mercer, the actuary employed by JLARC.
The report clearly states a point VEA made in last year's session: changes to the retirement plan "will not reduce the liabilities the plans have already accrued and which the State is obligated to pay."
One advantage of having VEA is that the state knows we will seek judicial remedy if our members are wronged.  The report notes that changes to retirement benefits that have already been earned by current employees, such as retrospective changes to the benefit multiplier, have "high legal risk."  Changes to benefits that have not yet been earned, such as capping the COLA, have "moderate legal risk."  Changes that apply to new hires have "low risk."
In the last session HB2465 would have closed the existing DB plan to all new hires shifting them to a new DC plan.  The report speaks clearly in regard to Delegate C. Jones' HB2465 from the 2011 session:
"It appears that closing the defined benefit plans would not be advantageous for the State and local governments as employers from either a cost or a human resources perspective, or advantageous for most employees."
 "... retaining the defined benefit plan is a better workforce management strategy."
The report quotes the National Association of State Retirement Administrators:  "Closing off a pension plan does not in itself produce savings. You do nothing to address the cost of the existing unfunded liabilities and, when you close a plan off to new hires, you shrink the pool of new workers that can [help] pay off the unfunded liability."
The bill would have cost $340 million in year one, cost more for more than a decade, and no saving would be derived until the 15th year of implementation, when a maximum of $155 million would be saved.
Had Jones' bill passed, Virginia would not have remained competitive as an employer and employees would not have received adequate retirement benefits.
When discussing alternatives to the existing DC plan, the report indicated that local government employees, including teachers, were less desirous of an option than state employees.  In regard to teachers the report offers the following:
"Most teachers JLARC staff interviewed said they preferred the defined benefit plan design to alternative options, but some teachers also agreed that defined contribution plans might be attractive to new, early-career teachers. However, they cautioned that providing a more portable benefit could negatively affect efforts to retain teachers. According to representatives from the Virginia Education Association, as well as teachers interviewed by JLARC staff, teacher retention is already a challenge, as few new teachers plan to remain in the profession for an entire career. For example, in an interview with JLARC staff, one teacher said, "I am concerned with establishing a system that encourages teachers to leave."
Further, in regard to shifting to alternative plans, the report states that given, "the State's uncompetitive salaries, generating sufficient savings on their own would be a challenge for many, especially lower-income, State employees."  This is true of members in the teacher fund as well.  Virginia's teacher salary is $4510 below the national average, and the salaries of many educational support personnel are disgracefully low.  The report states that, "employees would need to contribute between eight and nine percent of salary over a full career to achieve adequate income replacement."
The report relays the unfortunate experiences of employees in West Virginia and Nebraska, where DB plans were replaced with DC plans and states, "the experiences of 401(k) plans nationwide suggest that, even with guidance and education, employees are unlikely to accumulate sufficient savings in a defined contribution plan."  The following bleak warning should make employees know that your current pension is worth fighting for, "... it is likely that many of these individuals will outlive their retirement assets ...."
Much is said, as well, about Delegate Putney's HB 2410 from the 2011 session.  To cut to the quick regarding this bill, the report relates that, "Meeting this adequacy threshold [adequate income in retirement] would depend on the employee's willingness or ability to contribute 8.5 percent of salary towards retirement consistently throughout his or her career and the performance of the employee's investments. Based on State employee survey results and local employee interviews, most employees could not contribute the full 8.5 percent and, therefore, would not meet the income replacement target."
Under Putney's bill, a retiring employee with a salary of $40,000 and 30 years of service would derive between 16 and 26% replacement income, as opposed to the 51% with the current pension plan.
 Passage of HB 2410 would have increased the State's retirement costs for state employees from between $66 and $324 million and the increase for teachers would have been $131 and $620 million.  In total this bill would have increased the costs for the state and local governments by an amount between $197 and $944 million through FY 2022.  Much of the increase in teacher costs would have been borne by local governments.  The low end numbers are based on a 5% participation rate in the new DC plan, while the higher numbers are reflective of a 20% participation rate.
 The report offers that a DC option or a combination plan option (hybrid DC/DB) could be adopted to reduce future costs .  However, it cautions that, "Because of the level of existing unfunded liabilities in the defined benefit plan, limited interest by employees in an alternative plan, and the level of education and guidance of employees that will be necessary, another plan should not be introduced with an expectation that significant cost savings will accrue to the State."
 It the State moves to an alternative retirement plan, the report asserts that it should adhere to the following guidelines:
 "The first five guidelines would apply to either a combination plan or a defined contribution
plan and the last two apply to a defined contribution plan only. The alternative should (i) be optional for newly hired and existing employees, (ii) have a mandatory employee contribution that is equal to the employee's cost in the defined benefit plan, (iii) be accompanied by a comprehensive and ongoing program to educate employees about financial planning for retirement, (iv) be accompanied by an investment platform that provides appropriate investment choices for employees with a range of investment abilities, such as lifecycle funds, (v) provide a benefit for employees who are unable to work due to a disabling condition, (vi) provide employees with one opportunity to change their plan membership within five years, and (vii) include a mechanism to maintain a necessary level of cash flow into the defined benefit plans' trust funds to ensure that existing unfunded liabilities continue to be paid for."
 VEA was the only employee group to stand in opposition to this bill when it came before the House Appropriations Committee last year.   VEA is working to form a coalition of organizations to join with us in the battle to protect VRS in the session ahead.  We convened a meeting with representatives of the Virginia Retired Teachers' Association, the Virginia State Police Association, the Virginia Governmental Employees Association, the Virginia Professional Firefighters, the Virginia AFL-CIO, and the National Public Pension Coalition today at VEA.  You will be essential to the battle.