Fairfax County can limit its unsustainable pension liabilities if it seeks serious policy options. But it has not.
Unfunded pension liabilities of its five main pension systems in June 2016 were an unsustainable $5.6 billion, up $0.8 billion in that year alone. Moreover, that unfunded level would be far larger were its liabilities based on realistic 5.5 percent discount rates rather than 7.25 percent discount rates.
One of five systems is the Educational Employees’ Supplementary Retirement System (ERFC) for public school employees. Its unfunded liabilities surged 27 percent last year. Worse, this supplemental system entices good employees to retire as early as 52.
In short, four of five systems — not the Virginia Retirement system — are unduly generous. If the County were prudent with liabilities for which it ultimately is responsible, it would seek — and consider — serious pension options. But it has not. To be prudent, the County should seek impacts on its unfunded liabilities of:
Changing full pension ages to the first of the Social Security age or one satisfying the Rule of 90 (age plus service years),
Eliminating employee contributions to, and eligibility for, pensions for new and unvested employees,
Using realistic pension discount rates of 5.5 percent rate,
Capping cost-of-living adjustments at 2 percent,
Increasing contribution rates by both employers and participating employees by 0.5 percent over each of the next five years and
Enhancing returns by shifting funds to diversified low-cost index funds.
Dr. David V. Pritchett