Virginia governor seeks pension changes in budget

WASHINGTON, March 30 (Reuters) - Virginia's governor has refused to sign the budget passed by the state's General Assembly, seeking amendments that would, among other things, funnel more money into the retirement system.

The Virginia Retirement System currently faces an unfunded liability of $17.6 billion, according to the letter Governor Robert McDonnell sent Tuesday night to the Virginia House of Delegates explaining why he had not signed the funding plan.

McDonnell, a Republican, would like the state to increase its contributions to the plan, transfer some of the general fund surplus into the system, and invest pension money faster.

On the employee side, he would like to create a defined contribution plan similar to those provided for private sector employees and allow local governments to require employees to contribute up to 5 percent of the cost of their pensions.

He wrote in the letter, which was released on Wednesday, a defined contribution plan "provides predictable and stable employer contributions" and "never creates an unfunded liability."

McDonnell said the legislature's budget, which sought to increase employees' contributions to the system while also giving them offsetting pay raises and to increase the employer contributions for a single quarter, would only provide $108 million per year in additional funding.

That was "far from what is required to strengthen the viability of the system," he wrote.

The assembly will consider the amendments next week.

Of the longer-term problems in states' budgets, none loom as large as underfunded pensions. Recent budget crises forced states to cut contributions to their retirement systems and the financial crisis dampened pension funds' investment returns.

Because it is near the nation's capital and has a large number of military installations, Virginia is in better shape than many other states. It recently revised up its revenue forecast for this fiscal year and next by $152 million.

In his letter McDonnell proposed 86 amendments that he said would cost $43.8 million over the next fiscal biennium beginning this summer, which would be offset by $49.9 million in savings or additional revenue.

The amendments would boost the "Governor's Motion Picture Opportunity Fund," expand tourism marketing, turn around industrial sites and help small towns.

They would also fully fund state police overtime so that "more troopers can be placed back on the road" and would also help fully fund local sheriff's offices.

(Reporting by Lisa Lambert; Editing by Andrew Hay)