Virginia Retirement System Update

1. Virginia Retirement System Update Virginia Association of School Business Officials Barry C. Faison, Chief Financial Officer October 3, 2014

2. Agenda • VRS Overview • Investments • Modernization & Pension Reform • GASB Changes

3. VRS Overview

4. VRS Total Membership As of August 31, 2014

5. Active Members Totals Fiscal Year As of June 30, 2014

6. Retirees Totals Fiscal Year As of June 30, 2014

7. Benefit Comparison Information above obtained from the June 30, 2013, Actuarial Valuation.

8. Funds Flow For the Fiscal Year Ended June 30, 2014

9. Net Fiduciary Position Fiscal Year

10. Estimated VRS Employer Contribution Rates Added cost to achieve the 2015/2016 contribution rate increases is approximately $315.0 millionfor the biennium in General Funds. Fiscal Year 2014 investment return was 15.7%. Above contribution rates are net of employee contributions.

11. Investments

12. VRS Fiscal Year Returns Fiscal Year

13. Fund Performance

14. VRS Investment Allocation as of June 30, 2014 (Dollar Amounts in Billions / Percent of Total Fund)

15. Funded Status: Teachers New GASB Accounting Rules will compute funded status using Market Value of Assets effective 6/30/14 for Plan Reporting and 6/30/15 for Employer Reporting. Projected Funded Status using Market Value of Assets (New GASB Standard) Projected Funded Status using Actuarial Value of Assets (Funding Standard) • Assumptions: • Fiscal Year 2014 investment return was 15.7%. • Other projected years’ investment returns assume 7.0% with 2.5% inflation rate. • Assets estimated at actuarial value of assets (five-year smoothing).

16. Modernization and Pension Reform

17. Modernization to Date

18. Phase 3 Changes • Replaced the participant record-keeping system • Redesigned member records • Added job names with associated benefit attributes • Captured unique employee benefit profiles • Replaced contribution reporting/payment processes • Direct access to member data for updates • “Snapshot” process to validate changes and reconcile data • Confirmation process tied to contribution payments • Electronic payments instead of checks/lockbox • Provided Employer Portal • Expanded access for employer to data at VRS

19. Pension Reform Changes • Implemented Hybrid Retirement Plan • Modified myVRS Navigator to account for defined contributions • Added interface with ICMA-RC for data exchange of Hybrid member account activity • Implemented process for apportioning member and employer contributions between DB and DC components • FY 2015 Pension Reform Activity • Developed a Plan Determination tool for employers • Modify myVRS Navigator for VLDP • Develop process for reporting and payment of employer contributions for LTD employees in VLDP or opt-out plans • Begin work on PPS modifications for Hybrid employees

20. Phase 4 Objectives • Eliminate legacy mainframe system (RIMS) • Eliminate need for staff to use two systems • Eliminate VITA mainframe charges • Achieve benefits inherent in myVRS Navigator • Implement online customer portal for members and retirees • New transactional self-service capabilities

21. Phase 4 Business Functions • Refunds • Long-Term Care • Benefit Calculations and Retirement Processing • Health Insurance and Health Insurance Credit • Disability Tracking • Payroll and Tax Processing • Benefit Account Maintenance • Purchase of Prior Service (PPS) • VLDP and VSDP • Other (actuarial reports, locator services, death matches)

22. Customer Portal Replaces all existing inquiry capabilities • Members: employment and salary history, open requests, annual statements, etc. • Retirees: summary of benefits payments, tax statements, life insurance reduction schedule, etc. Adds new transactional capabilities • Enhanced authentication and authorization • Simulate benefits • Request refund • Change VRS beneficiaries • Retire online

23. Approach • VRS-managed with continuous business owner engagement • “Replace” RIMS but position VRS and myVRS Navigatorfor future improvements • Assign the right staff and carefully selected vendors • NeoSpin Framework Upgrade • Rules engine proof of concept • Must be managed in concert with several other significant projects • Virginia is replacing the statewide accounting system (the Cardinal Project) • Work begins now for a 2016 implementation • VRS is currently competing the VSDP/VLDP third-party provider contract

24. Phase 4 – Release Plan Phase 4 Release Plan Release 1 Release 2 Release 3 Release 4 • November 2015 • Benefit Calculation Engine • Member Portal 1 • September 2016 • Benefit Account Maintenance • Retirements and Health Insurance • Member Portal 2 • October 2017 • Payroll and Tax Processing • Disability Tracking, LTC, VSDP and VLDP • Retiree Portal • July 2015 • Current State Analysis • Self-Service Study • Refunds Member Portal 1: Authentication, DB and DC Estimates, Online Refunds Member Portal 2: Online Retirements, VRS Beneficiary Changes Member Portal 3: Retiree Functionality

25. GASB Changes

26. GASB Changes • Working with VRS Actuary on required data for new Plan and employer presentations • Working with APA on additional audit steps necessary to support Pension Liability calculations • Working with employers and their auditors to meet their needs for member demographic data • Working with VRS Actuary and employers to develop all information necessary for Local Government financials • Target dates: • June 30, 2014 for VRS financials • June 30, 2015 for local government financials

27. Questions?