Sunday, April 30, 2017

Has the Fairfax County School Board Just Declared War on all School & County Employees?

On March 2, I went with three friends to a meeting of the McLean Citizens Association.  We drove through the magnificent neighborhoods among McMansions, Real Mansions, and Really Real Mansions, admiring the Gated Houses and Gated Developments.  It was fabulous, beautiful, like visiting another world.

I don’t see these kind of neighborhoods that often because I live on the other side of the county, among 60's split levels and 50's three and four bedroom bricks on a slab or over a basement. Older homes are nestled here and there among the classic early suburban landscape. My neighborhood is filled with teachers, plumbers, bakers, firefighters, policemen, small business owners, carpenters, and mechanics–and I love it.  But gotta admit, McLean is spectacular.

The reason for our visit was to observe the McLean Citizens Association’s meeting on our teachers’ pension plan.  The Association had recently come out swinging in the Washington Post and local papers at ERFC, the Fairfax teachers’ supplemental retirement plan, and we wanted to get a feel for what it was about.

The recommendations they had for the people who teach in the McLean and Fairfax County public schools was that their pension plan be privatized and reduced to mostly what the teachers themselves could contribute from their $47K starting salary, or $58K average salaries.

After all, the people whose homes I was driving by insisted, we don’t have those generous retirement plans like ERFC, which  pays retirees an average of $1,429 a month.  That $1.4K is from deferred compensation and the employees’ own contributions, and out of that $1.4K the cost of teachers’ personally paid health insurance is deducted, making take home considerably less.

The average household income in McLean according to the census bureau is well over $164K per household, and over $194K for families.  Single guys in McLean make an average of $132K.

Of course, I’m glad for them that they do, well done, and would never go to the newspapers to recommend their hard earned money be taken away, but comparing teachers’ delayed compensation to their own portfolios, golden parachutes, and stock options might be a better comparison than-- you’ve got a pension plan, and I don’t.

On Monday April 24 and on Thursday night April 27, I went to two more meetings. These were of the Fairfax County School Board.

These meetings were for the final deliberations and vote on an FCPS budget proposal that would cut ERFC-- not about privatizing the plan immediately; that would be too expensive, but about reducing benefits for teachers with under 5 years or new hires–the first step.

The first meeting on Monday was 7 hours long because when all the community attendees arrived at the time scheduled, the Board left the public observers sitting for the first 1 ½ hours, waiting while the Board excused themselves to go into closed session.  They would go into closed session for another hour later in the day before finishing the meeting.  My friends and I sat and waited through both delays while the board attended to other more important matters.

To fully understand, it’s important to know that ERFC has been a well managed pension system, not in danger of failing, conforming to best practices consistently, and performing well compared to national plans.

On Monday, my friends and I watched as the Board questioned the ERFC managers and coordinators vigorously and with less than professional respect at times. It became progressively more clear, based on their questioning that the Board was all over the map in their relative understandings of large scale investment and pension funds, with most  having little experience, expertise, or self-education in the area. It also became clear that the proposal to reduce ERFC, which had been published as part of the 2018 budget back in September, was a fixed goal, not a possible consideration as most budget items are.

The second meeting on Thursday night April 27 was the business meeting, where it would all be decided. That one lasted until after 11 and also included a hiatus for a closed meeting while the Board recused itself.

The Board was arrayed as always across the front of the stage and the house was pretty full, but not SRO.  Teachers have a hard time doing weekday evening meetings.  They have necessary second jobs, papers to grade, family requirements, and often small children, but many, who could not be there, had called, e-mailed or sent their concern.

The reasons the Board had been giving since September for the ERFC changes was to give teachers raises, help balance the budget, and establish the long-term health of the fund.

Had we been suspicious, we might have suspected this was not entirely genuous because the projected savings was $4.7 million for this year, and the Board had $22 million in general carryover they could have used, an additional $8 million dedicated to the Boards’ own “special projects” carryover, and they were spending $2.4 million on a computer program to add additional  testing and data collection for all elementary schools.

But these were people we knew, from our districts, people who ran on caring about our public schools, about children, and their teachers.

Megan McLaughlin and Tom Wilson, in a last ditch effort to stop the changes, presented a motion to postpone the decision for no longer than a year, for more study.  Afterall, the proposed changes if directed to salaries for this year would give each employee $200 a piece for the year, not enough to cover much of anything.  The cuts would not seriously relieve budget woes in a $2.7 billion proposed budget– and the fund is not in trouble unless Fairfax pulls its contributions.  There is no hurry we can wait a year, they maintained.

The rest of the Board denied the motion to postpone and at the end of the day, most voted to cut what would amount to 3% of ERFC benefits from all new hires who start on or after July 1, 2017. (Voting to cut new hires' pensions was Hynes, Schultz, Strauss, Evans, Moon, Kaufax, & McElveen,)

The new plan would also require our 2017-18 first year teachers and all after to work well over 30 years for a retirement.  A 22 year old would have to work 37 years and a 25 year old, 34 before being eligible for the reduced benefits.

The cherry on the cake was yet to come though. One final motion was presented after all was done-Elizabeth Schultz proposed another working group on both County and School pensions.  It was decided they did not need to include all employee compensation in her motion because they had already initiated a joint study group that would study how they could change compensation for All County and School employees, it would consist of Sharon Bulova and Sandy Evans, and their respective Budget chairs. *

The Working Group was approved with only Ryan McElveen voting no. Chair Sandy Evans and Schultz agreed from the stage that it should not be a large or far ranging working group made up of citizens and stakeholders, but should be 3 Board of Supervisors members and 3 Interested School Board members.

Next year, it would not be 3% of retirement for newbies, everything would be on the table–on both the County side and the School side.

As I walked out of the meeting after 11, I recognized  several of the McLean Citizens Association members sitting with their laptops up and running. They were smiling.

In my quiet house in my working class neighborhood, I didn’t get to sleep until 4 a.m.

*CORRECTION: After rewatching the recordings of the end of the April 27 meeting,  Apologies to Ms. Schultz for attributing the General Compensation study group to her motion in the original blog.  Her motion was to create a new group to study pensions.  However, there was substantial discussion that concluded they did not need to include other compensation in her motion, because the school board had already recently authorized a Joint Working Group to study General Compensation.  The outcome was the same. Everything is still on the table, it was just done with 2 working groups rather than one.


  1. Cheryl has captured the situation, as it evolved, accurately and fairly. I attended both School Board meetings this past week and saw members cut off the experts who had come to deliver the report the board had requested in March. It was evident they had made up their minds before even hearing this information. Having served six years on the ERFC Board, it was evident from School Board members' questions and comments that few had any depth of understanding of the pensions system and of investing in general. They had bought into the presssure of a community association, where ERFC pensioners cannot afford to live. Finally, throughout the last year stakeholders were completely left out of the discussion and will continue to be left out, thanks to Mrs. Schultz's motion. It was only through the initiative of the various teacher groups, along with a coalition joined by Fairfax County firefighters, police, fire and rescue, etc., that we were able to save our non-vested employees from the same fate as new hires.

  2. So disappointed in anti-teacher stance of many school board members and citizens. No wonder stellar superintendent Karen Garza stepped down. She did not want to balance the budget on the backs of teachers yet again, as had happened under her predecessors. She must have had to fight harder than we teachers even realized. Too bad the McLean Citizens Association and school board members think their teachers are too stupid to weigh their options when they enter the teaching profession. Why allow us to teach your naturally above-average children when we are so poor at retirement planning mathematics? Many of us are career changers who made significant sacrifices in salary when switching but calculated how a pension could help us justify the pay cut to ourselves and loved ones counting on us for basic needs. I realize that your ideal teacher chose the profession due to her love of children, but it's hard to pay the rent in Fairfax County and harder to retire with a nest egg padded with love of children.
    Kudos to Ryan MacElveen, public servant and defender of our high quality schools. For shame Elizabeth Schultz, for Shame. Dr. Garza tried to stanch the flow of Fairfax county teacher talent to neighboring counties. The school board would do well to attempt the same. Incoming potential hires replacing the lost talent undoubtedly will be savvy enough to research their retirement benefits and find the lack of respect among many on the school board and privileged members of the community.

  3. How we continue to have a School Board that doesn't support schools continues to amaze me. The last 5-7 years has shown such a decline in the reputation of FCPS. I chose Fairfax County because of their commitment to excellence in schools. I could live in neighboring counties more cheaply. 3 more years until my youngest graduates. Can't wait. Hoping too much damage isn't done in the meantime.

  4. This comment has been removed by the author.

  5. Donthefan, it was both. The article talks about multiple meetings. Perhaps a review of the article is in order.

  6. As former FCPS teacher, I had to choose either to move to a different district or add yet another part time job to my schedule. I choose to work at FCPS over a decade ago based on its support of teachers and students. The said fact is FCPS wants the best teaching staff and instruction but will not pay for it. In little over 2-4 years the National teacher shortage will be over 100,0000 and it is only going to grow. If they don't change their practices, they will have more empty teacher position at the beginning of each school year.

  7. I lived in Fairfax county for 9 years and moved to Prince William. The board knows what they want to do and will do that after going through all the legal processes to avoid a lawsuit. They do have a tough job and best of luck to them but when they have their minds made up, good luck. They are mainly liberals on the board and they shut down any conservative or logical ideas. They stick to the "if it feels good, it must be good ideas."

  8. ERFC is necessary for teachers, because they do not have the option of overtime like Fairfax County Police and Fire Department(s). Much respect for all of our civil servants.

  9. I doubt that any of those folks living in those mansions utilize the public schools. Of course, they will be happy to cash in on Betsy's vouchers.

  10. Cheryl, The article is accurate. How would you suggest the School Board balance the budget? I was active on the Budget Task Force, and certainly have my opinions. The $22M in carryover is already accounted for, you can't double count it. Do you believe the current retirees should have been getting larger raises than the current employees for the past 10 years? The $10.4M between the testing software and special projects is a potential, but that means that long term analysis will once again be cut.

    I am NOT disputing your post, just looking for your thoughts. The School Board controls expenditures, but the Boar of Supervisors controls the revenue.

    I don't know if my profile will come through, so I will sign this.

    Matt Haley

    1. This comment has been removed by the author.

    2. Matt, thanks for commenting, and thanks for your work on the Budget Task Force.

      I do have some ideas, but I don't have a single solution to the perpetual budget battles. There would be many elements to what is a complex problem.

      Also, I don't want to dictate what everyone else "should" do without hearing from lots of people nearest the classrooms and schools-- teachers, students, parents and PTA groups. There are lots of ways to engage one another in conversations and develop ideas.

      And I recognize that in the end, both boards will need to work together, but not in the vacuum of predetermined outcomes as has been done too often in the past.

      And I'm especially enthusiastic about them listening and truly including all the stakeholders in the solution finding.

      I'd really like to talk and hear your ideas off the public channel.

      E-mail me and we can talk more.

  11. The continued budget shortfalls, year after year, for the last 10 years is a pattern. FCFT should solicit members to begin a lawsuit for gross financial mismanagement. School teachers deserve better.

  12. I’ll chime in as I attended the Work Session, the Regular Meeting and I was a member of the Superintendent’s Budget Task Force (BTF). I have experience managing private corporate pension plans and am well versed in ERFC. I am a recent member of MCA (and do not speak for them) and live in Town of Vienna. I am familiar with the MCA Resolutions on Pensions and with the Great Falls Citizens Association (GFCA) letter to the Board of Supervisors of Jan19th, authored by Matt Haley (Chair of the BTF) advocating for change to County and School pension plans.
    The McLean Citizens Association has issued three resolutions to date – two on January 4th directly commenting on Pensions, and one on April 5th addressing Budget issues at the County (the individual resolution sections are excerpted and appended at the end of this document). These resolutions are well documented and are extensively reviewed by the Committee membership and by the Board of Directors of MCA. MCA has over a hundred years of community service and has an extensive membership with diverse talents and experience and training.
    A review of these Resolutions is important as it contradicts Ms. Binkley’s characterization.
    From the FY 17WABE Guide (a regional comparison of school district statistics compiled by FCPS available online), the FCPS starting salary is reported (p. 39) as $47,516; the average salary is reported as $70,813, and the average Teacher Cost (salary + benefits paid by FCPS – p. 43) is $105,219. It is important to note the relatively large component of total compensation made up by benefits (largely pensions).
    This is important for two reasons: 1) comparisons with surrounding school districts are often couched in terms of ‘salaries’, ignoring the contribution of pension benefits which are significantly higher in FCPS, and 2) the idea that young teachers would prefer to compensation in the form of higher salaries rather than future benefits.
    As shown in an answer to a Budget Question from Ms. Hough (see BoardDocs, Library, FY2018 Budget Questions, #67), Total Compensation for all Master’s Lane Teachers is at or better than the ‘Market Average’. This is largely the result of the application of $44M last year to raise the compensation across the pay lanes and steps. So, the facts show that FCPS Teacher compensation is competitive.
    The second issue is whether the form of compensation is appropriate. If teachers don’t value the benefits component of their compensation and only compare salaries when considering employment, then FCPS may be at a disadvantage in attracting teachers by offering good pension benefits. Both the Great Falls Citizen Association and the McLean Citizens Association noted that this issue should be investigated and noted that it might be appropriate to reduce pension benefits in favor of higher salaries. Note that MCA resolved in favor of higher teacher compensation – this written position statement is not conveyed in Ms. Binkley’s report.

  13. Let’s look at ERFC, the supplemental pension plan offered to FCPS teachers since 1973. No other jurisdiction in the area offers a similar benefit.
    ERFC provides a Comprehensive Annual Financial Report (CAFR) after the end of each fiscal year at 6/30/xx. The FY2016 CAFR is available on line and shows a wealth of information, including payments made to beneficiaries and performance of the invested assets. On p. 83 the average monthly retirement benefit is reported as $1,523. On the page above, the benefits are reported by years of service – so for more than 25 years of service the average benefit is greater than $2,600 per month.
    This illustrates another aspect of pension plans that is problematic – you must stay a long time to get the benefit. Many teachers come to FCPS and don’t stay. There are Separation Reports (available on BoardDocs) that show that approximately 12% of the teachers leave each year, and more than 40% of teachers don’t attain 5 years of service. These teachers never vest in the pension plans.
    So, there are real issues to debate about whether pension plans are appropriate to attract and retain the best teachers to FCPS, whether current plan designs are equitable to young and old teachers and retirees, and whether they are sustainable… I’ll address this.
    Ms. Brinley asserted that; it it important to know that ERFC has been a well managed pension system, not in danger of failing, conforming to best practices consistently, and performing well compared to national plans. A few commenters have made similar assertions.
    I am on record, along with GFCA, and MCA, and many others, raising concerns about the ERFC Plan. I summarize my points below – all page references are to the FY2016 ERFC CAFR:
    p. 33 Net Pension Liability (the amount owed by the Plan but not currently funded) has increased from $493M in 2014 to $610M in 2015 and to $830M in 2016. This is ‘debt’ that FCPS is responsible for – an additional debt of $337M in two years.
    p.23 Employer’s Contribution (the amount that FCPS contributes to the Plan each year) was $35M in 2010, $75M in 2015 and is $95M in 2018. These are funds that FCPS cannot spend on programs or salary increases.
    p. 4 & 35 Contribution Rate as a percent of salaries – FCPS paid 4.34% of salaries in 2012, 5.60% in 2016, 6.40% in FY18 and is projected to pay 8.00% 5 yrs forward in 2023. By contrast, the employees (teachers) paid 4.00% in 2012 and since then have paid 3.00% of salaries to the Plan.
    p.33 Plan Fiduciary Net Position as percent of Total Pension Liability – this is the ratio of funds available to the Plan to pay benefits to the total benefits that are promised. In 2014 this was 82% (so 82% of promised benefits were covered by dollars in the pension fund), in 2015 this was 78% and it is currently 72%.
    The trends of these standard plan metrics are alarming. There are two other metrics that are mentioned in the GFCA and MCA resolutions – fees paid for fund management and performance versus peers.
    ERFC pays approximately 0.60% (also called 60 basis points – each basis point is 1/100th of a percent) to fund managers – the bankers and investment managers who often live in McLean. By comparison, FCERS (the three County pension plans) pay about half as much – 0.30% or 30 bp. The Nevada Public Pension Plan pays only 5 bp for its fund – and outperforms the ERFC fund over 1, 5 and 10 years.
    In fact, the ERFC fund was outperformed by 81% of its peers over 1 year 80% of peers to 5 yrs, and by 69% of its peers as of the most recent fiscal year end.
    See p. 52 of the RVK Investment Performance Report (available on BoardDocs) one of two peer reports the ERFC uses, to see that ERFC has carried above average risk and achieved below average returns over the past ten years.
    This is data – not assertion.

  14. As I noted earlier, I was at the Work Session and detected no disrespect in the questions directed to the ERFC ‘managers and coordinators’ – I am interested to hear where this was perceived (the video in online).
    Ms. Brinley’s comment about the relative experience and understanding of pension issues is correct. It is for this reason that I have advocated to the Fairfax County Board of Supervisors that ERFC fund management be consolidated with existing County plans. Note that this only pertains to fund management and does not constitute any change to the fund benefits. If fund assets are better managed at lower cost (which the County plans have shown they can do over the past ten years relative to ERFC) then that results in more assets in ERFC to pay benefits with.
    The ERFC Board struggles with a similar lack of experience – three of the seven members are from the Leadership Team (Quinn - COO, Michaels – CFO and Smith – Chief of Staff) and three are elected from the school employees (currently a math teacher, a librarian and a MS teacher). An outside appointee is the seventh member. The current appointee has financial experience but no experience with managing a pension fund. So, seven untrained, inexperienced members are overseeing $2.2 billion dollars – what could go wrong…
    Now let’s look at what the School Board agreed to. First, the motion does not impact any existing ERFC members or even those hired this year (before 7/1/17). FCPS Staff combined several elements into ‘options’ for the Board to consider, so it’s not possible to determine the specific cost/savings associated with each element. There are four elements:
    1) interest crediting rate reduced from 5% to 4% - this is the rate of interest that FCPS pays to teachers who have contributed to the Plan but who leave and don’t vest – they take their money plus the guaranteed annual interest rate.
    2) 5 year Final Average Salary – this calculates the final salary as the average of 5 years rather than the current 3 years. Since salaries at the end of service are fairly flat this will not significantly impact long term employees but will disproportionately impact employees who leave in mid-career.
    3) COLA (cost of living adjustment) – changed form a fixed rate of 3% currently to a CPI (inflation index) capped at 4%. This only impacts those employees hired after 7/1/17. The use of a 3% fixed has been a boon to current retirees since inflation has averaged only 1.6% over the past 10 years – so they have received more cola, an additional benefit – taking more funds from the Plan that can support later retirees. If inflation exceeds 3% in the future, these beneficiaries will lose out as inflation erodes their benefits. So, it all depends…
    4) The Rule of 90 – so now, age plus service must be greater than 90 to qualify for retirement. The County plans are at Rule of 85 and this has been contentious, particularly for Ms. McLaughlin who wants to tie FCPS compensation to County compensation. This could be a double edged sword as the County may find it easier to cut compensation as the Supervisors are not as directly subject to the voting power of the teachers’ allies as the School Board members may be.
    So, the ‘savings’ from all this amounted to $2.3M. After gaining $44M of salary investment last year and enjoying raises multiples of the raises enjoyed by Federal workers or Social Security recipients, or even most private sector workers….
    Over the ‘short-term’ (as yet undefined) the savings rise to $6.3M and over the long-term (also undefined) the savings rise to $16.1M.

  15. Just for context, consider that the County’s total increase in unfunded liabilities for pensions in one year (from 2015 to 2016) was $818 Million dollars. This is approximately $800 for every man, woman and child in Fairfax County – approximately $3,200 per family of four – and closer to four times that as a burden on those who actually pay taxes in Fairfax County.
    You will have seen the news report this a.m. in the WaPo Metro section p.B5 on Alexandria’s increase in taxes by 5.7 cents – combined with water, sewer and other service fees will increase the average homeowners’ bill by $706 per year.
    Note also, that Metro will be coming to Fairfax next year with a request for an additional $100M.
    So, increasing pension costs are a real concern. The GFCA and MCA are doing a real service to investigate, gather data, gain expert evaluations, write position papers and inform citizens and their representatives on possible alternatives. To avoid the issues and the data, or seek solace in unsubstantiated emotional appeals and baseless assertions is not helpful. To my mind, it is entirely disingenuous to question the sincerity of Board members, citing “who ran on caring about our public schools, about children and their teachers.” These Board members commit long hours, at small pay, to grapple with complex issues, demanding constituents and limited resources. They are obliged to represent their constituents and to make decisions in the best interest of all.
    The pension issue is interesting because it is so complex. Do new teachers even value pensions or should we just pay them a larger salary? If we pay retirees more does that reduce the amount that we can pay starting teachers? How can we attract and retain new talent if we are committing so much of our resources to retirees? Does a COLA that is substantially above actual inflation become an additional benefit or will it all work out when inflation rises?
    And who should make these decisions?

  16. Ms. Brinley incorrectly characterizes the final motion for a working group to look at FCPS pensions (see Board meeting video here: at 1:08 for Ms. Schultz’s motion). The motion language is for a ‘joint pension work group’ with the School Board and the Board of Supervisors – there was no mention of ‘all employee compensation’ – there was also no statement by Ms. Schultz as to the specific form or staffing of the work group. Ms. Evans inquired if Ms. Schultz had in mind a specific form for the group and Ms. Schultz noted that she ‘’didn’t anticipate that we were going to get bogged down in the details” (see 1:23).
    I’m interested in facts rather than narrative. I hope this short paper has increased awareness of what will be a long debate and struggle. These are contentious issues. Teachers claim to be underpaid. Citizens voted down a Meals Tax. New teachers want better benefits. Retired teachers claim they were promised certain benefits. Kids need to be taught and schools need to be built and maintained. This is important work on all sides.
    I hope that a more comprehensive appreciation of facts and context will inform the discussion. I hope that all discussants extend respect and a presumption of goodwill to others.
    I hope that Fairfax County continues to be efficiently run and attracts businesses and workers who are committed to stay for the long-term and contribute to making a vibrant, caring, responsible community.
    And if you have made it this far, my sincere appreciation for your considerate investment of time – I hope it was worthwhile.
    Kind regards, John DeLong
    703 272 8881

  17. The Budget Resolution of April 5th, 2017 is excerpted below:
    Now, therefore, be it resolved that the McLean Citizens Association commends the Fairfax County Board of Supervisors for its efforts to identify and fund budget priorities without an increase in the real estate tax rate; and
    Be it further resolved that the McLean Citizens Association urges the School Board, in balancing the FCPS FY 2018 budget, to prioritize
    • salary increases for classroom teachers to address teacher hiring and retention concerns,
    • avoidance of class size increases at McLean-area and other schools that already have significantly larger classes than the FCPS averages for schools that serve students in the same grade levels, and
    • allocation of sufficient teacher positions to each middle and high school to enable principals to cap all science lab classes at 24 students, to reduce the risk of lab accidents; and

    Be it further resolved that the McLean Citizens Association urges the Board of Supervisors to provide additional funding, as available, from further cost savings, contingency funds, and other sources, to Public Safety for the Diversion First and other unfunded County priority programs; and
    Be it further resolved that the McLean Citizens Association urges the Board of Supervisors and School Board to reduce the cost of their pension plans for new and non-vested employees, including the elimination of the early retirement benefits so that the cost of the County and FCPS pension plans are similar to the cost of the Virginia Retirement System hybrid pension plan for implementation by the beginning of fiscal year 2019.

  18. On January 4th, MCA issued two Resolutions, one titled Overview of Pension Plans and Their Costs (excerpted below), and the other titled Fairfax County Pension Plans: Next Steps (excerpted further below).
    1st Resolution
    Now, therefore, be it resolved that McLean Citizens Association urges the Board of Supervisors and the School Board to reduce the growth in the County’s future retirement benefit payments; and
    Be it further resolved that the pursuit of this objective requires the evaluation, structuring, and implementation of meaningful changes to pension plans for new and non-vested employees such that the net cost of those benefits to the County and FCPS would be similar to those under the Virginia Retirement System hybrid pension plan; and
    Be it further resolved that the pursuit of this objective requires the elimination of the Pre-Social Security Supplement for all new and non-vested employees; and

    Be it further resolved that McLean Citizens Association urges that the above mentioned changes to the pension plans be implemented by the beginning of FY 2019.
    2nd Resolution
    Now, therefore, be it resolved that McLean Citizens Association urges the Board of Supervi-sors to take the following steps to reduce the growth in the County’s future obligations for re-tirement benefit payments:
    • Proceed with the County’s Retirement System Review on an expedited basis, with completion in time to implement changes in the FY 2019 Budget, because of the sig-nificance and urgency of the issue,

    • Define the purpose of the Review as the recommendation of meaningful structural changes to the pension plans for all new and non-vested employees such that the net cost of those benefits to the County would not exceed the cost of the Virginia Retire-ment System hybrid pension plan,

    • Define the purpose to include the elimination of the Pre-Social Security Supplement for all new and non-vested employees and for all vested employees,

    • Define the scope of work to include consideration of a new plan similar to the Virgin-ia Retirement System hybrid pension plan,

    • Vest responsibility for the Review with a commission, committee, or task force re-porting to the Board of Supervisors which, in addition to County employees, has a preponderance of financial and personnel professionals with experience in retirement benefit plans who are not employees of the County, to ensure objectivity, no appear-ance of conflicts of interest, and adequate specialized skill sets, and

    • Engage Aon Hewitt or another reputable consultant to update the 2012 Study and to recommend the courses of action which the County should consider, recognizing that no individual is likely to have the depth of experience and knowledge of an actuary and pension consultant necessary to advise on these matters.

    1. I was at those meetings, too. Numerous experts testified that the ERFC has achieved good results over time. The School Board actually said that ‘there was too much data, we just need the basic themes.’ Then, they proceeded to assume they knew more than the experts. The overconfidence was stunning. Beware of people who can’t process the details, but know better…

  19. Ms. Dash, I liked your admonition to "beware of people who can't process the details, but know better..."

    Below is the text of a note I sent to various members of the ERFC Board, the School Board and other community members. I thought you might be interested in the facts of ERFC's poor performance over the past 10 years. There is a LOT of money being wasted in the management fees paid by ERFC for lousy performance. This wasted money could do a lot of good for students, teachers and the community. Kind regards, John

    Ms. McLaughlin, thank you for highlighting the ERFC fee issue at last night's work session ( at 3:15).

    A few initial thoughts and data to support your suggestion for the School Board to direct the ERFC Board of Trustees to reduce fees:

    FCERS uses the same long-term expected return as ERFC of 7.25% (so they both expect to earn the same returns but use different funds with the expectation to achieve this target)

    FCERS pays approximately 1/2 the fees that ERFC pays for different strategies to make the same expected return.

    There is no reason that ERFC could not shift its funds to the same strategies and allocation that FCERS uses with no change to expected returns but significantly lower fees (I am not advocating this explicitly but making the point that the expected return target can be achieved using strategies with much lower fees).

    FCERS returns over 10 years exceed 94% of its peers - its rank is top 6% the average annual return was 6.2% (p. 1 2016 FCERS CAFR)

    ERFC returns over 10 years exceed only 31% of its peers - its rank is 69% the average annual return was 5.5% (p. 47 2016 ERFC CAFR)

    I have suggested that the Actuaries be asked whether they could reflect a certain fee reduction in the Actuarially Determined Contribution amount (ADC) for the current year. Alternatively, the School Board has an option to reduce the contribution in the ADC. However, I caution that the current unfunded liability of ERFC (at $830M) is so large that future increases are projected to rise up to 8% of payroll in 2023 (per the Asset Liability Study p.22). There will be significant increases in contributions to ERFC in the near term budgets (unless investment returns substantially exceed the 7.25% target - this is not foreseen by the Actuaries).

    But this is budget math - the important point is that lower fees in ERFC leave more money for other school priorities! unless you argue that higher fees are paid for higher returns - but we know that is not the case e.g. FCERS... Even if the Actuaries don't reduce the ADC, there will be more money in the Plan (as a result of lower fees) so future contributions will be lower and this results in more money available for other priorities - if I have more money in my left pocket I can spend more from my right pocket without being worse off...