VRS Overview

VRS Overview

Virginia Governmental Employees Association

Robert P. Schultze, VRS DirectorSeptember 13, 2014

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Agenda

• VRS Overview

• Investments

• Summary

• Questions

VRS Overview

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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

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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?