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Virginia Retirement System Update VACO Conference

Virginia Retirement System Update VACO Conference. November 8, 2010 Robert P. Schultze Director. Agenda. System Overview Funding the Benefit 2010 Legislation Upcoming Issues. System Overview. VRS Overview. VRS is the 22 nd largest public or private pension system in the U.S.

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Virginia Retirement System Update VACO Conference

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  1. Virginia Retirement System Update VACO Conference November 8, 2010 Robert P. Schultze Director

  2. Agenda • System Overview • Funding the Benefit • 2010 Legislation • Upcoming Issues

  3. System Overview

  4. VRS Overview • VRS is the 22nd largest public or private pension system in the U.S. • There are almost 600,000 members, retirees and beneficiaries.

  5. VRS Total Membership As of June 30, 2010

  6. Active Members

  7. Retirees

  8. July Retirements by Fiscal Year

  9. Benefit Comparison 1 – Indicates information from the 2010 actuarial valuation. 2 – Indicates information from 2009 actuarial valuation.

  10. Funding the Benefit

  11. Funding VRS Benefits How is the VRS benefit funded: • 68% of benefit costs funded by investment earnings • 32% of benefit costs funded by employee/employer contributions

  12. VRS Fiscal Year Returns 14.1%

  13. Net Assets Available for Benefits

  14. Funded Status What is meant by funded status: • Compares assets available to pay benefits with present value of future liabilities • Asset/liability ratio is typical measure • Percentage of assets available to pay present value of all future liabilities (until the last member of the plan dies)

  15. Funded Status: Teachers

  16. Funded Status: Local Governments 2009 Aggregate Funded Ratio – 570 Plans Note: 2009 average funded ratio of 570 plans = 94.5%

  17. Contribution Rates Contribution Rates • 2010 - Eliminates employer contributions to VRS in the last five pay periods of Fiscal Year 2010. VRS estimates the rate holiday will reduce contributions to VRS from about $2.4 billion in FY 2010 to about $2.1 billion. • 2011-2012 – Contribution rates for the pension programs and OPEBs funded by the General Assembly are provided in the following charts. • 2012 – 2014 - In setting the employer retirement contribution rates in subsequent biennia, the Board shall calculate a separate, supplemental employer contribution rate that will amortize the FY 2011 and 2012 contribution shortfalls over a 10-year period using the Board's assumed long-term rate of return. The Governor shall include funds to support payment of such Board-approved, supplemental employer contribution rates in the budget submitted to the General Assembly.

  18. Retirement Contribution Rates *Current FY 2010 rates are based on assumptions applied in the 2009 Appropriations Act (8% rate of return, 3% inflation rate, and a 30-year amortization). Board certified rates are based on the following assumptions (7.5% rate of return, 2.5% inflation rate, and a 20-year amortization period). These rates do not reflect the suspension of payments in the 4th quarter. ** Average rate for localities. Contribution rates include the 5% member contributions.

  19. Teacher Contribution Rates FY ‘84 – ‘14 • Above rates include the 5% member contributions paid by employers. • Assumes 7.00% rate of return and 2.50% inflation rate.

  20. Local Government Contribution Rates (Averaged) • Above rates include the 5% member contributions paid by employers. • Assumes 7.00% rate of return and 2.50% inflation rate.

  21. 2010 Legislation

  22. 2010 Legislation HB 1189/SB 232 • Creates new plan design provisions (Plan 2) for state, teachers and local government employees hired on or after July 1, 2010 • Creates a new plan (Plan 2) for Optional Retirement Plan (ORP) members hired on or after July 1, 2010. • Does not affect current members or current retirees, who are under Plan 1. Members who left employment and did not take a refund are deferred members and remain in Plan 1.

  23. 2010 Legislation

  24. 2010 Legislation

  25. 2010 Legislation

  26. 2010 Legislation

  27. Proposed Savings From Pension Reform (Teachers) Above chart assumes all Plan 2 members pay the 5% member contribution.

  28. Line of Duty Act • The Line of Duty Act (LODA) Fund can be found in Item 258 of the Budget Bill; imposes annual contributions upon state and local agencies, beginning July 1, 2011. • LODA provides health insurance and death benefits for hazardous duty employees and volunteers and their families upon death or disability in the line of duty. • A new LODA Fund comes under VRS’ investment management. Contributions will be made by state and localities. • Contribution rates will be calculated by VRS Board of Trustees in mid-December. • Localities may opt out and provide for separate financing.

  29. Upcoming Issues

  30. Pending Changes in Pension Accounting Rules • GASB has issued “preliminary views” • Final rules to be issued in two years • Changes affecting local governments and school boards: • Pension liabilities/expenses go from footnotes to balance sheet • Pension assets would be marked to market causing significant volatility in annual reporting • Cost-sharing pension plans (VRS Teacher Plan) must allocate liabilities proportionally to each employer

  31. Thank you!

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