New state employees pay price for cost-cutting

A new state law effective this month allows localities to trim costs in a tough economic environment, but the savings come at the expense of new employees.

Starting this past Thursday, newly hired state employees are required to pay a 5 percent member contribution to the Virginia Retirement System.

VRS is a retirement fund for state and local employees — for nearly three decades the state has been paying state employees’ contributions.

The state law permits a local employer to “pick up” the 5 percent of local employees as an additional benefit, causing officials across Central Virginia to debate frugality against issues of fairness and a highly competitive job market.

Some governing bodies across the area decided to pay the additional benefit, while others did not.

Lynchburg City Council decided on a 4-3 vote last month to stop making the 5 percent contribution for its new employees.

The move is expected to save $1,500 to $2,000 per person based on average city salaries. Current employees, whose benefits cannot be reduced, will continue to get their full VRS contribution paid by the city on their behalf.

Savings are likely to be minimal in the short term across Central Virginia because officials plan to do little hiring but could grow over time.

“It’s not like we’re hiring a huge amount of people right now,” said John Sharp, who represents Forest on the Bedford County Board of Supervisors. “We’re not going to save much now. But future boards and future taxpayers can save a lot of money.”

In the interest of preventing a “two-tier” classification of employees, Bedford County Administrator Kathleen Guzi recommended to the board that the county continue paying the 5 percent.

The board voted 5-2 on Monday to deny that action.

Guzi told supervisors she was concerned that eliminating the benefit may hurt recruiting efforts for public safety and the Bedford County Nursing Home. The health care field is very competitive, Guzi said, and her recommendation could be different if the county didn’t operate its own nursing facility.

Sharp said state lawmakers, for once, passed legislation to help save money and he didn’t want to miss that opportunity, especially in a tough budget climate where local officials complain about state cuts.

“I’m not sure that’s the message I want to send to the General Assembly — that we have a lot of money — because we don’t,” Sharp said Monday.

New employees would have the choice to join the county’s work force, being fully aware of the new measure that’s a result of a “free market,” Sharp said. In this economy, he said he felt future employees would be glad to secure a steady job despite having one less benefit.

Guzi said the average county employee earns an annual salary of $35,000, meaning the average retirement costs for new workers to pay is $1,750.

New employees in Campbell County and Amherst County also are now required to pay the 5 percent contribution.

“People in general need to take responsibility for their future well being, and that involves health insurance and retirement,” Campbell County Adminis-trator David Laurrell said. “The bottom line is it’s the right thing to do.”

Estimated annual savings from the move is $25,000, Laurrell said.

Campbell County is asking the state to clarify the language in the law, he said. As it stands, he said, keeping up with two pay classification systems will be complicated and an administrative burden.

Controlling costs was the major motivation behind Lynchburg’s decision. The city currently has the highest VRS rate in the state at 23 percent. It still will be responsible for contributing 18 percent toward the retirement of new employees —which officials noted is still ahead of retirement packages available in the private sector.

Officials in the area against the decision to no longer pick up retirement costs expressed concern about future recruiting and questioned the fairness of creating a secondary system of employees.

Bedford County Super-visor Chuck Neudorfer, who voted against not picking up the benefit, said a dual system “doesn’t seem like a good idea” in terms of employee morale.

A number of councils and boards across Central Virginia — which includes Appomattox County, the city of Bedford, the town of Appomattox and the town of Altavista — chose to continue picking up the full portion of VRS contributions.

Atlavista wanted to prevent creating two separate levels of employees, Town Manager Waverly Coggsdale said.

“You’re treating employees differently,” he said of officials not footing the costs.

Altavista has the finances to offer the perk — Town Council recently approved a 2 percent raise for all employees and added to positions.

The Virginia School Board Association is suggesting that school boards not pass the VRS additional costs to employees, and school officials in this area appear to be following that recommendation. Lynch-burg City Schools, Bedford County Schools and Campbell County Schools all passed resolutions to keep paying the 5 percent.

“If you think about it, it creates some inequities in our pay line,” Campbell County Superintendent Robert Johnson said, adding he believes the state will make adjustments to the plan and that someday all employees will have to start contributing to their pensions. “We want more information before we lock into something.”

The Bedford County Public Service Authority also decided to keep paying the 5 percent but on a “tentative” basis as it reviews the matter again next year, said Brian Key, director.

The independent authority that provides water and sewer in certain parts of Bedford is “thin” in terms of work force with 34 employees and a hiring freeze in place, Key said. Not enacting the measure would give a “competitive edge on hiring” if a vacancy were to arise, he said.

“We felt the impact would be minimal,” Key said of potential savings from the measure.

• Staff reporters Alicia Petska, Amy Trent, Jessie Pounds and Nolan Connelly contributed.