Virginia Unfunded Pension Liabilities Could Triple This Year
July 20, 2022 | Virginia
If investment returns for Virginia’s pension system come in around negative 6%, the commonwealth’s unfunded liabilities could nearly triple for Fiscal Year 2022, according to a report from the Reason Foundation.
Virginia’s unfunded liabilities for FY2021 were slightly less than $6 billion, but early indicators estimate an average negative 6% return on investments for FY2022. If the commonwealth’s returns are at that rate, its unfunded liabilities would increase to slightly more than $17 billion.
Unfunded liabilities are costs that the Virginia Retirement System must eventually pay out to people, but does not yet have the assets to provide to them. Consistently high unfunded liabilities will either force higher contributions from employees or the costs will ultimately fall on the taxpayers, according to Ryan Frost, a policy analyst at the Reason Foundation. One year of returns will not require immediate changes to contributions, he said, but if it turns into a trend, then that might be necessary.
Frost told The Center Square that retirement systems are seeing bigger swings in unfunded liabilities every year because the plans are taking on higher risk investments to meet needed returns. However, he said one bad year with these high-risk investments could result in very large increases in unfunded liabilities, such as Virginia is seeing.
Virginia’s unfunded liabilities were less than $3.17 billion in 2007, but swung up to more than $26.4 billion in 2009, which was primarily due to market changes during the Great Recession. The numbers fluctuated up and down for the next decade, but did not go below $19 billion until 2021. In 2020, the commonwealth had more than $25.4 billion in unfunded liabilities, but dropped to less than $6 billion in 2021. Reason’s 2022 estimates suggest a large fluctuation for 2022 in the other direction, bringing the total to more than $17 billion.
Last year, more than 94% of the state’s pension system was funded, but Reason… (Excerpt from the Virginia Star)
