VRS Overview Virginia Governmental Employees Association Robert P. Schultze, VRS Director September 13, 2014.
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VRS Overview
Virginia Governmental Employees Association
Robert P. Schultze, VRS DirectorSeptember 13, 2014
2
Agenda
• VRS Overview
• Investments
• Summary
• Questions
VRS Overview
4
VRS Total Membership
Plan 1 Plan 2 Hybrid Total
Teachers 101,196 43,047 1,105 145,348
Political Subdivisions 66,783 35,602 2,887 105,272
State Employees 52,771 23,193 2,406 78,370
State Police Officers’ Retirement System (SPORS) 1,520 488 0 2,008
Virginia Law Officers’ Retirement System (VaLORS) 5,558 3,854 0 9,412
Judicial Retirement System (JRS) 317 69 0 386
Total Active Members 228,145 106,253 6,398 340,796
As of July 31, 2014
Total Active Members
Retirees/Beneficiaries
Inactive/Deferred Members
VRS Total Population
340,796 180,880 126,243* 647,919**Inactive/deferred members as of June 30,
2014
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Benefit Comparison
State Teachers Local
Actives: Average Age 48.3 45.2 46.3
Average 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
Avg. Social Security Benefit at Age 62
$18,252 $17,640 $14,640 Information above obtained from the June 30, 2013, Actuarial
Valuation.
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Funds Flow (estimated)
Beginning Balance – July 1, 2013
$58.4
Contributions $3.1
Net Investment Income $9.0
Total Additions $12.1
Total Deductions ($4.4)
Net Additions $7.7
Ending Balance – July 1, 2014 $66.1
Cash Flow (contributions minus deductions)
$(1.3)
For the Fiscal Year Ended June 30, 2014
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Net Assets Available for Benefits
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014$0
$10
$20
$30
$40
$50
$60
$70
22.2
26.9
31.7
35.7
40.8
37.734.4 34.7
40
44.1
48.7
58.355.1
42.6
47.7
54.653.3
$58.4
$66.0
Assets
in
Billion
s
Fiscal Year
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Funded Status: State Employees
0%
20%
40%
60%
80%
100%
120%
81.7
% 89.3
% 95.3
%10
5.5%
106.
8%
104.
1%
100.
4%
94.6
%
85.8
%
83.3
%
85.1
%88
.0%
84.0
%
75.2
%
70.6
%
65.6
%
65.1
%
68.0
%
70.9
%72
.5%
74.6
%76
.2%
74.2%74.7%75.2%75.7%76.2%
Assumptions: • Fiscal Year 2014 investment return estimated at 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).
Projected Funded Status using Market Value of Assets (New GASB Standard)Projected Funded Status using Actuarial Value of Assets (Funding Standard)
New GASB Accounting Rules will reflect funded status using Market Value of Assets effective 6/30/14 for plan reporting and 6/30/15 for employer reporting.
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Estimated VRS Employer Contribution Rates
Estimated Contribution Rates by Fiscal Year
2013-14 2015 & 2016 2017 & 2018 2019 & 2020
State 8.76% 12.33% 12.04% 11.96%
Teachers 11.66% 14.50% 14.58% 15.00%
• Added cost to achieve the 2015/2016 contribution rate increases is approximately $315 millionfor the biennium in General Funds.
• Fiscal Year 2014 investment return estimated at 15.7%.• Above contribution rates are net of employee contributions.
General Assembly committed to phase-in contribution rates for the teacher and state plans to the VRS board-certified rates as
follows:
July 1, 2012 July 1, 2014 July 1, 2016 July 1, 2018
State 67.02% 78.02% 89.01% 100%
Teachers 69.53% 79.69% 89.84% 100%
Investments
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VRS Fiscal Year Returns
Fiscal Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
-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
etu
rn
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Fund Performance
VRS Return(As of June 30, 2014)
3-year 9.5%
5-year 12.3%
10-year 7.4%
15-year 6.1%
20-year 8.8%
25-year 8.7%
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VRS Asset Allocation as of June 30, 2014
(Dollar Amounts in Billions/Percent of Total Fund)
Retirement Resources
15
Retirement Preparedness in U.S. Households
New study on financial preparedness of pre-retirees (Wharton Pension Research Council) in the U.S. found the following:
• Roughly half of U.S. households are unlikely to maintain their pre-retirement standards of living
• Compared to prior generations of retirees, current pre-retirees are less prepared for the following reasons:
– People are living longer
– Healthcare costs have risen dramatically
– Social Security is less generous
– 401(k) plans have replaced defined benefit plans
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Retirement Planning
• More than 38 million U.S. working-age households do not have retirement accounts. (NIRS Feb. 2014)
• “Employees really need to be saving up to 15% of pay for 30 to 40 years to have a sufficient nest egg for retirement.”
– Christine Marcks, president of Prudential Retirement
• “Overall, 75% of Baby Boomers say tax deferral is an important trait of a retirement investment.” – Insured Retirement Institute (IRI)
• “When they go through a retirement income calculation, 20% of participants increase the amount they contribute by five percentage points, from 4% to 9%. Turning up the deferral rate at age 32 or 33 can have a profound impact. ‘That’s the powerful moment of truth for them,’ ” says Marcks. – February 21, 2014 (PLANSPONSOR.com)
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Retirement Resources at VRS
• Visit www.varetire.org and set up a myVRS account
– Benefit Estimator
– Financial Planner
• Review your Member Benefit Profile (MBP)
• Register for group seminars or one-on-one consultations
• View a video on your plan; view Financial Matters video series
• Review your plan member handbook and Getting Ready to Retire Guide
Summary
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Upcoming Issues
• 2015 General Assembly Session and 2014-16 Budget
– Maintain adherence to commitment to fund the plan in the budget
• Pension Reform Is Still Alive and Well
– Other states: several states still are in the midst of pension reform
– Virginia: Hybrid plan implemented and plan used as a model for other states
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Upcoming Issues
• Pension Accounting
– GASB pension rules go into effect in 2014 for VRS and in 2015 for employers
– GASB just issued draft Other Post-Employment Benefit (OPEB) rules
• Contribution Rates
– State and teacher contribution rates now expected to remain flat, a significant decrease over prior year’s projections
Questions?
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