My days as a Trustee for The Virginia Retirement System (VRS) concluded March 1, 2013 – after eleven years.

Dr. John M. Albertine, Albertine Enterprises, joined me in exit after serving his designated two full terms. Albertine, the consummate business executive, held one of four important Investment Professional seats….as trustee he implacably challenged the conventional wisdom with frequency; he was consistently prescient.

At the time of exit, it was clear a new number of economic realities had been chronicled. For instance, former Federal Reserve Chairman Alan Greenspan publically bemoaned: “Unless we remove some of the deep-seated uncertainly, especially for investments in very long-lived assets” growth will remain under 2 percent.”  Ultraseriously, Greenspan supported the $2.5 trillion package of spending cuts and tax increases proposed by Erskine Bowles and Senator Alan Simpson.

Chronicling these economic realities left us in quandary. While Commonwealth employees and public school teachers were working longer, retiring later, and experiencing smaller annual wage increases, it would now slightly help the Virginia Retirement System (VRS) with its long-term bills.

Michael Martz, Times-Dispatch reporter, wrote that the April board meeting adopted a series of slight adjustments, resulting in a minor gain for the retirement system – especially funding pensions for teachers and state police. That action was based on a review of assumptions and experiences between mid-2008 and mid-2012, which even in economic terms, was “no day at the beach.”

Martz further observed the recent years had been anything but comforting: “After adjusting for inflation over the past 10 years, Commonwealth employee wages increased an average 0.12 percent, and teacher pay fell 0.19 percent”. The biggest VRS assumption – how much the $ 52 billion system will earn on its investments – will not change. VRS will continue to assume a long-term annual rate of return of 7 percent on investments.

Within the past year, localities and school boards have little choice but to pay Generally Assembly mandated rates. Coming up on the horizon will be the real test – whether the General Assembly sticks to the funding plan, which it approved in the 2012 pension reform legislation.

This Board knows that in the current biennium, the pension reform legislation calls for school boards to pay only 70 percent of the VRS recommended contribution rates. By the 2014-16 biennium, you will see an increase to 80% – the 2016-18 increases further to 90%. Finally by July 1, 2018 the law requires school boards and other VRS employers pay the 100% rates recommended by the VRS Board of Trustees. Will the General Assembly stick to this funding policy? Time will tell.

Regarding the “borrowed” funds from the VRS Trust Fund, Governor McDonnell, making good his commitment to begin a 10-year payback, funded the first and second installments on the payback by adding an extra 1% to the contribution rates. Other installments will be due in future state budgets, which will not be enacted until after this Governor’s term expires. What will his successor bring? Again, we will see.

In the waning days of this trusteeship, several private exchanges with top level management inspired some taunting introspection. Expressing my uncertainty and confronting this inexhaustible set of economic challenges, a calibrated exchange occurred  between us. One reacted: “maybe for the first time ever, the US may seriously be in a situation where our youth, in the aggregate, may not get as high an improvement in the standard of living as the historical long term trajectory would suggest.”

Our dialogue continued; “That doesn’t mean doom and gloom. But the ‘American Century’ may give way to ‘China Rising’….I do not think that long term China will flame out the way Japan did.”

As a retiring trustee, I could not disagree.


Raymond B. Wallace, Jr., a former CEO, former Trustee of Virginia Retirement System, and a retired classroom teacher at Mills Godwin High School, can be reached at