Virginia Retirement System

Overview and Your Actuarial Reports

VGFOAHampton Roads Regional Training Event

April 28, 2014

Barry C. FaisonVRS Chief Financial Officer

Overview of Virginia Retirement System and Modernization Update

History of Pension Reform in Virginia Hybrid Plan Information Actuarial Valuations GASB – New Standards Questions

Agenda

Overview of VRS

VRS Overview

VRS is the 21st largest public or private pension system in the U.S.

There are more than 640,000 members, retirees and beneficiaries.

VRS Membership

As of December 31, 2013

Teachers 146,295

Political Subdivisions 105,096

State Employees 78,477

State Police Officers’ Retirement System 2,013

Judicial Retirement System 405

Virginia Law Officers’ Retirement System 9,520

Total Active Members 341,806

Retirees and Beneficiaries 174,953

Inactive and Deferred Members 123,955

VRS Total Membership 640,714

VRS Employer Comparison

State Teachers LocalActives:

Average Age 48.3 45.2 46.3

Average Vesting Service 12.8 11.9 11.1

Average Salary $48,972 $48,994 $41,287

Retirees: (in FY 2013)

Avg. Age @ Retirement 63.0 61.8 62.1

Avg. Service @ Retirement 22.6 23.3 19.9

Avg. Benefit @ Retirement 38.4% 39.6% 34.7%

Avg. Annual Benefit $20,441 $23,116 $15,367

Information obtained from the June 30, 2013 Actuarial Valuation.

VRS Active Members

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 201350,000

70,000

90,000

110,000

130,000

150,000

170,000

State Teacher Localities

Fiscal Year

Tota

ls

VRS Retirees

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

State Teacher Localities

Fiscal Year

Tota

ls

Benefits Administered

Defined Benefit Pension Plans– VRS, SPORS, JRS, VaLORS

Hybrid Pension Plans (Effective January 1, 2014)– VRS, JRS

Other Post-Employment Benefit Plans– Group Life Insurance Program– Retiree Health Insurance Credit Program– Virginia Sickness and Disability Program– Virginia Local Disability Program (for local employees in

the Hybrid Plan – Effective January 1, 2014)

Net Position – Restricted for Benefits

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 41639$0

$10

$20

$30

$40

$50

$60

$22.2

$26.9

$31.7

$35.7

$40.8

$37.7

$34.4 $34.7

$40.0

$44.1

$48.7

$58.3$55.1

$42.9

$47.7

$54.6$53.3

$58.4

$62.3

Ass

ets

in B

illio

ns

VRS Fiscal Year Investment Returns19

90

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

Investment Return Assumption

% R

etur

n

FY 2013 Investment Return was 11.8%

Modernization Update

Modernization Program An evolving customer base

– Customer expectations– New technologies for communication and contact– Customer’s knowledge

VRS focused on changes to meet customer needs– Superior Customer Service

High touch ‘Turbo Tax’ approach Benefit simulation/online application wizards Customer education

Multi-year, multi-phase project Replaced 20-year-old mainframe technology

infrastructure with a web-based system

Manage employer contacts

Enroll new hires

Update employee info

Download reports

Receive alerts and

noticesConfirm contributions

due Counsel

employees

Assist employees

through retiring online

Certify retirements and refunds

Update employer

information

Modernization – Employer Functionality

In the Future for Members

Simulate benefit options

Apply for retirement or refund online

Enroll in optional benefits

View all VRS benefits in one place

Designate beneficiaries

Access educational

opportunities

Contact VRS via secure

Web chat or email

Track the status of requests

Update address and

other info

Receive alerts and

notices

Modernization Program

Modernization program update:– Phase 3 was implemented November 5, 2012

Employer functionality Imaging, Enterprise Knowledge Support, Centralized Print, etc.

– FY 2013 Year-end processes occurred in both new and legacy systems

– Focus is on supporting the new system and transitioning resources to legislative work

– Phase 4 (Member and Retiree functionality) will be restarted after Pension Reform

Member Portal Benefit calculation Benefit payments

Actuarial Valuations

Actuarial Valuation Report

Funding Formula

Defined Benefit Plan Funding:C + I = B + E

(Contributions + Investment Income = Benefits + Expenses)

Prepared annuallyEvaluate the funded status of the PlanDetermine the appropriate contribution rateAssumptions vary by employer size/coverage

VRS Funding Policy – June 30, 2013

June 30, 2013 Employer contribution rates reflect the new policy

30-year amortization of unfunded actuarial liability as of June 30, 2013– 30-year closed period (decreasing by one each

year until reaching 0 and June 30, 2013 unfunded is fully funded.

Future annual changes in unfunded liability to be funded over closed 20-year periods

Actuarial Experience Study

Conducted every four years Compares assumed to actual Basis for assumption changes Assumption Changes Based on Experience

Study 2008 to 2012– Move to more current mortality table– Decrease real wage increase for non-LEOS– Decreased some disability rates– Reduced some retirement rates

Actuarial Valuation Report Contents

Transmittal letter to governing body– Highlights of report results– Summary of valuation process– Major assumption changes

Summary of principal results Plan contribution development Accounting information Actuarial cost method Summary of benefit provisions Data summary

Summary of Results

Normal Cost

Development of the Annual Contribution

Employer Rate Projections

Schedule of Funding Progress

Actuarial Assumptions – RSI

Actuarial Assumptions – Other

Mortality – RP-2000 tables projected to 2020 and adjusted for VRS experience– Pre-retirement– Post-retirement– Post-disability

Retirement rates – Varies by Plan/Age/Sex Disability rates – Varies by Age/Sex Termination rates – Varies by Years of

Service/Age/Sex Salary increase rates – Varies by Years of

Service

GASB -New Standards

Governmental Accounting Standards Board (GASB) Changes

Virginia law requires all state and local agencies (including VRS) to report financial statements in accordance with “Generally Accepted Accounting Practices”

VRS will provide data necessary valuation results required for disclosures

For Teacher cost-sharing pool, VRS will determine the “collective” data for the pool and the “proportionate share” for each locality

Governmental Accounting Standards Board (GASB) Changes

Reasons behind GASB changes:– Improve consistency and transparency– Enhance decision usefulness of pension information

Extends only to financial reporting, however, funding changes possible to preserve cash flows

Effective dates: Plan Administrators – FY 2014

– actuarial valuations as of June 30, 2013 Employers – FY 2015

– actuarial valuations as of June 30, 2014 with analysis of changes since June 30, 2013

Governmental Accounting Standards Board (GASB) Changes

Assumed Investment Return– Based on long-term expected return on assets held in trust unless

the fund is expected to be depleted before all benefit payments are made, or

– Based on blended single-rate (long-term rate while assets are available and municipal bond index for remaining period)

Projecting Assets– Benefit projections on closed group of participants– Contribution projections based on formal policies and past

behavior If past compliance, then future assumes compliance If not, use average of last five-year payment history

Impact of Changes

Significant liability will be brought onto the face of the financial statements

Funded ratios will be impacted Apportionment of teacher cost-sharing plan

liabilities will add more to locality liabilities Accrued pension expenses will increase

significantly due to shorter amortization periods Constituent pressure on local officials for plan

design changes to reduce costs

VRS Actions

Insure that Actuarial Valuation reports have the necessary plan and valuation information for employer reporting– Evaluate required disclosures needed by employers– Verify the projected cash flows to insure adequacy of funding– Provide detailed information to compute pension expense

Develop a process for the allocation of Actuarial Valuation data for multiple-employer, cost-sharing pools (teachers)– Allocation will likely be based on covered payroll– Must account for possible legislation related to teacher

pension funding

VRS Actions (con’t.)

Develop a process for the allocation of Actuarial Valuation data for the state-employee groups for component units and other entities that issue separate financial reports

Work with the Auditor of Public Accounts to provide a way to make usable information available to auditors in a timely manner– Prepare a separate report on actuarial data, allocations, etc.– Update VRS-provided pension disclosure guidance– Update information in Uniform Financial Reporting Manual and

Local Audit Specifications Prepare for similar changes for OPEBs

Questions?

Thank you