Citizens in McLean are worried about the county’s pension system and the county’s inability to pay for the obligations it owes its retirees.
“The current pension fund for county employees is underfunded and it’s getting worse,” says Jeff Barnett, president of the McLean Citizens Association.
His group unanimously approved two resolutions that call attention to the system’s financial state during a meeting of its board of directors on Wednesday, Jan. 4.
“We’re trying to bring to [the Fairfax County Board of Supervisors’] attention the magnitude of the problem,” Dale Stein, the chair of the group’s Budget and Taxation Committee, said during the meeting.
In total, the county is borrowing $4.7 billion to make up for the shortfall in payment obligations for retirees, which the county will need to pay back with interest, according to Stein.
“This is not cheap money … it is the single biggest part of the financial structure for the county,” Stein said. “Now is the time to address this financial crisis with substantial and urgent restrictions to the pension plan.”
The Fairfax County government has received a AAA bond rating from Standard & Poor's, Moody's and Fitch Investors Service bond rating agencies. However, these agencies-- Moody’s in particular—have expressed concern that the county’s pension systems are not adequately funded.
THE COUNTY has maintained its AAA rating since 1978, which has been critical for the county to receive affordable debt service and access to funds in support of capital projects. But the unfunded pension liability is a constant threat to the county’s rating.
Since 2015, the county’s unfunded pension liability has increased by $1 billion, according to Stein. The MCA is worried this increase could cause Moody’s further concern about the county’s creditworthiness.
The Fairfax County Employees’ Retirement System comprises three separate pension plans for county employees: The Employees’ System for civilian general county employees; the Police Officers System for sworn police officers; and the Uniformed System for fire and rescue uniformed personnel, the Sheriff’s Office, the Department of Public Safety Communications, the Animal Control Services, helicopter pilots and park police.
The MCA resolutions focused solely on this system.
The Fairfax County Public Schools also manages and funds a separate Educational Employees’ Supplementary Retirement System for FCPS personnel who are employed full-time in educational, administrative and support positions.
“Pension obligations are crowding out our capital investments,” Louise Epstein, the chair of the group’s Education and Youth Committee, said during the meeting. “We need to do something.”
What the MCA is urging the Fairfax County Board of Supervisors to do is immediately end the county’s Pre-Social Security Supplement for all new employees and for employees who do not have vested retirement benefits. This benefit pays retirees a supplemental amount if they choose to retire before they are eligible to receive their full Social Security payment.
The resolutions originally called for ending this benefit for both vested and unvested employees, but was quickly changed when it became a point of contention for board members.
“That benefit may have been reasonable at other times, but given the poor condition of the current funding for the pension plan, we believe that that needs, at the very least, a stringent review,” says Barnett.
THE MCA is also urging the Board of Supervisors to establish a commission to review the county-managed pension obligations. MCA wants the commission to study options to reduce the growth in future pension obligations and to publish a report in 2017 that would guide corrective action to be taken by fiscal year 2019.
“The Board of Supervisors are the only ones that can change the funding policy or benefits or anything in our system, but I can tell you the county takes it very seriously that they need to fund the benefits that have been promised to our current and future retirees,” says Jeff Weiler, the executive director of the county’s Retirement Administration Agency.
The county has established a goal to reach a 90 percent funding status for all plans by fiscal year 2025 and changes have already been made.
The county’s fiscal year 2016 budget included a $8.57 million increase for fiduciary requirements associated with the county’s retirement systems.
Considering the funding goal, the county also mandated that any additional unfunded liability created because of approved benefit enhancements, such as ad‐hoc cost of living adjustments (COLAs), would have to be fully funded up front. This new policy ensures that no adjustments to benefit levels would reduce the funded status of any of the systems.
Weiler estimates that the county could achieve 100 percent funding for its pension system between 2030 and 2035. This projection is partially dependent on the financial market and whether his agency meets all prior targets.
“I don’t think there’s a crisis at all … I’m very confident that we can achieve full funding of all three of our pension plans in the foreseeable future … in terms of our funded status, ours are in an OK realm,” says Weiler. “They need to improve and the county is committed to helping us do that.”
As of June 30, 2016, the Employees’ System is 70 percent funded; the Police Officers System is 81 percent funded; and the Uniformed System is 77 percent funded, according to Weiler.