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

Virginia Retirement System Update

Virginia Association of School Business Officials

Barry C. Faison, Chief Financial OfficerOctober 3, 2014

2

Agenda

• VRS Overview

• Investments

• Modernization & Pension Reform

• GASB Changes

VRS Overview

4

VRS Total Membership

Plan 1 Plan 2 Hybrid Total

Teachers 100,438 42,655 1,281 144,374

Political Subdivisions 66,081 35,246 3,487 104,814

State Employees 52,356 22,856 2,946 78,158

State Police Officers’ Retirement System (SPORS) 1,513 484 - 1,997

Virginia Law Officers’ Retirement System (VaLORS) 5,515 3,877 - 9,392

Judicial Retirement System (JRS) 313 69 - 382

Total Active Members226,21

6105,18

7 7,714 339,117

As of August 31, 2014

Total Active Members

Retirees/Beneficiaries

Inactive/Deferred Members

VRS Total Population

339,117 181,660 115,962 636,739

5

Active Members

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

State Teachers Localities As of June 30, 2014

Fiscal Year

Tota

ls

6

Retirees

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

State Teachers Localities As of June 30, 2014

Fiscal Year

Tota

ls

7

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. AFC @ Retirement $53,203 $58,358 $44,240

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

Beginning Balance – July 1, 2013

$58.4

Contributions $3.1

Net Investment Income $9.1

Total Additions $12.2

Total Deductions ($4.4)

Net Additions $7.8

Ending Balance – June 30, 2014

$66.2

Cash Flow (contributions minus deductions)

$(1.3)

For the Fiscal Year Ended June 30, 2014

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Net Fiduciary Position

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

$37.7$34.4 $34.7

$40.0

$44.1

$48.7

$58.3$55.1

$42.6

$47.7

$54.6$53.3

$58.4

$66.2

Assets

in

Billion

s

Fiscal Year

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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 $315.0 millionfor the biennium in General Funds.

Fiscal Year 2014 investment return was 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)

1-year 15.7%

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 Investment Allocation as of June 30, 2014

(Dollar Amounts in Billions / Percent of Total Fund)

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Funded Status: Teachers

0%

20%

40%

60%

80%

100%

120%

76.0

% 83.4

% 92.6

%10

3.1%

106.

2%

99.4

%

93.7

%

87.2

%

77.9

%

76.0

%78

.2%

79.8

%

76.1

%

68.6

%

66.0

%

62.4

%

62.0

%

64.9

%

67.7

%69

.3%

71.4

%72

.9%

70.7%71.2%71.8%72.4%72.9%

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).

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 compute funded status using Market Value of Assets effective 6/30/14 for Plan Reporting and 6/30/15 for Employer Reporting.

Modernizationand

Pension Reform

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Modernization to Date

New Capability Outcome Measure

myVRS Navigator (Employer)

• 99.8% availability for FYE 2014

• Over 97% of employers confirm by end of month due; no further processing required

• New data/better data being collected

Data Center (Henrico County, VA) • 100% availability

Disaster Recovery Data Center (Raleigh, NC)

• 100% availability

Hardware Replacement • Approximately 300 virtual servers and nearly 200 terabytes of mass storage

Cisco VOIP Phone System • 100% availability

Imaging and Content Management System

• 100% of workflow documents imaged within one day

Security Management System • 99% reduction in false positive alerts

• Automatically drop 200 – 600 suspicious connections monthly

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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

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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

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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

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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)

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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

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Approach

• VRS-managed with continuous business owner engagement• “Replace” RIMS but position VRS and myVRS Navigator for

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

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Phase 4 – Release Plan

Phase 4 Release Plan

Release 1 Release 2 Release 3 Release 4

July 2015

• Current State Analysis

• Self-Service Study

• Refunds

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

Member Portal 1: Authentication, DB and DC Estimates, Online Refunds

Member Portal 2: Online Retirements, VRS Beneficiary Changes

Member Portal 3: Retiree Functionality

GASB Changes

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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

Questions?