RICHMOND, Va. -- The chairman of the $31.5 billion Virginia Retirement System is pressing state lawmakers to create an optional defined contribution plan for new employees, and Republican Gov. Jim Gilmore's administration seems receptive to the idea.
This is the second time VRS Chairman Edwin T. Burton III has asked legislators to approve a 401(k)-like plan. The system covers 356,000 workers and retirees.
The first time, in the mid-1990s, the administration of then-Gov. George Allen decided against doing anything more than informally studying the idea.
This time -- despite fierce opposition from some VRS trustees and state lawmakers -- Mr. Burton might succeed.
For one thing, Mr. Burton says his proposal is designed to empower workers.
"Employees who do not stay until retirement do not get a good deal," he said.
State workers who quit their jobs and move outside the state or to the private sector receive only 4% interest on their contributions if they take lump sum distributions. They do not receive any of the state's contribution.
Alternatively, they can leave their money with VRS and receive retirement benefits based on their salary and the number of years they worked for the state government.
"It's not an attractive choice," Mr. Burton said.
The state contributes about $255 million to the VRS, which is 79.8% funded.
Ronald L. Tillett, Virginia's secretary of finance, said the Gilmore administration is studying Mr. Burton's proposal.
It is "highly possible" that lawmakers might agree by the end of the current legislative session to commission a study of Mr. Burton's proposal, Mr. Tillett said.
"There is always a catalyst for change and Ed Burton, as chairman of the retirement system . . . might be the catalyst for change," he said.
The Gilmore administration is interested in examining proposals that would make the state retirement system "better, more flexible, more portable for hardworking employees of Virginia," he said. But any proposal drafted, he said, would have to have input from state employees and employers, and would need the backing of lawmakers and the executive branch.
The state wet its feet last year by approving a small defined contribution plan for around 70 key cabinet officials and school superintendents.
Under last year's law, the state's top officials may either stay in the current defined benefit pension plan, or opt for the new defined contribution plan, which kicked off July 1. State officials who opt for the new defined contribution plan would receive an employer contribution of 10.04% and still be able to switch back to the traditional pension plan after they are fully vested in five years. The Virginia Retirement System will administer the new defined contribution plan; participants will be able to choose from eight investment options.
The state currently contributes 9.41% of pay for state employees covered by the traditional pension plan. What's more, Virginia college professors have participated in a defined contribution retirement plan for decades, said William H. Leighty, VRS' executive director, who declined to comment on Mr. Burton's proposal.
VRS' board of trustees has not taken a formal position on its chairman's proposal, Mr. Leighty said.
VRS Chief Investment Officer Erwin H. Will Jr. says he supports Mr. Burton's proposal.
Some VRS trustees and state lawmakers are not shy about criticizing Mr. Burton's proposal.
State teachers groups are expected to register their opposition.
Elise Emanuel, who has represented state teachers on the VRS board since 1994, is concerned about how teachers would fare.
"The teachers I know and represent are very busy teaching school. That is why it's difficult to have so much time to spend on investments," she said.
She also worries that in the long term a new defined contribution plan could eviscerate VRS by drawing new teachers away from the defined benefit plan.
The Virginia Education Association, which represents about 100,000 state teachers and instructors, intends to study Mr. Burton's proposal, but will probably oppose it, said Ralph J. Shotwell, director of finance, research, retirement and special services.