virginia retirement system update vaco conference
DESCRIPTION
Virginia Retirement System Update VACO Conference. November 8, 2010 Robert P. Schultze Director. Agenda. System Overview Funding the Benefit 2010 Legislation Upcoming Issues. System Overview. VRS Overview. VRS is the 22 nd largest public or private pension system in the U.S. - PowerPoint PPT PresentationTRANSCRIPT
Virginia Retirement
System Update
VACO Conference
November 8, 2010Robert P. Schultze
Director
2
Agenda
System Overview
Funding the Benefit
2010 Legislation
Upcoming Issues
System Overview
4
VRS Overview
VRS is the 22nd largest public or private pension system in the U.S.
There are almost 600,000 members, retirees and beneficiaries.
5
VRS Total Membership
Teachers 147,817
Political Subdivisions 104,385
State Employees 78,613
State Police Officers’ Retirement System (SPORS) 1,766
Judicial Retirement System (JRS) 408
Virginia Law Officers’ Retirement System (VaLORS) 9,620
Total Active Members 342,609
Retirees/Beneficiaries 148,496
Inactive/Deferred Members 105,774
VRS Overall Impact 596,879
As of June 30, 2010
6
50,000
70,000
90,000
110,000
130,000
150,000
170,000
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Fiscal Year
Tota
ls
State Teacher Localities
Active Members
7
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Fiscal Year
Tota
ls
State Teacher Localities
Retirees
8
July Retirements by Fiscal Year
3,6252,944
3,026
2,996
3,686
3,415
3,619 3,561
3,355
5,248
5001000150020002500300035004000450050005500
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
July Increase in Retirees
Benefit Comparison
State 1 Teachers 1 Local 2
Actives:
Average Age 47.89 45.02 45.5
Average Service 12.91 11.65 10.3
Average Salary $46,222 $47,958 $39,348
Retirees:
Avg. Age @ Retirement 60.64 59.25 61.1
Avg. Service @ Retirement 24.61 24.61 19.5
Avg. Benefit @ Retirement 41.84% 41.84% 33.3%
Avg. Benefit $17,023 $20,814 $13,791
9
1 – Indicates information from the 2010 actuarial valuation.2 – Indicates information from 2009 actuarial valuation.
Funding the Benefit
11
Funding VRS Benefits
How is the VRS benefit funded: 68% of benefit costs funded by investment
earnings
32% of benefit costs funded by employee/employer contributions
VRS Fiscal Year Returns
12
-25.0
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.01989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
% R
etu
rn
Investment Return Assumption
8.0% from 1988 - 20057.5% from 2005 - 20107.0% from 2010
14.1%
13
Net Assets Available for Benefits
$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
$0
$10
$20
$30
$40
$50
$60
As
se
ts in
bill
ion
s
1996 1998 2000 2002 2004 2006 2008 2010
14
Funded Status
What is meant by funded status: Compares assets available to pay benefits with
present value of future liabilities
Asset/liability ratio is typical measure
Percentage of assets available to pay present value of all future liabilities (until the last member of the plan dies)
15
Funded Status: Teachers
0%
20%
40%
60%
80%
100%
120%
1994 1998 2000 2002 2004 2006 2008 2010
16
Funded Status: Local Governments
91.6
%
83.4
%86
.1% 88
.1%
88.7
%
85.1
%
0%
20%
40%
60%
80%
100%
2004 2005 2006 2007 2008 2009
2009 Aggregate Funded Ratio – 570 Plans
Note: 2009 average funded ratio of 570 plans = 94.5%
17
Contribution Rates
Contribution Rates 2010 - Eliminates employer contributions to VRS in the last five pay
periods of Fiscal Year 2010. VRS estimates the rate holiday will reduce contributions to VRS from about $2.4 billion in FY 2010 to about $2.1 billion.
2011-2012 – Contribution rates for the pension programs and OPEBs funded by the General Assembly are provided in the following charts.
2012 – 2014 - In setting the employer retirement contribution rates in subsequent biennia, the Board shall calculate a separate, supplemental employer contribution rate that will amortize the FY 2011 and 2012 contribution shortfalls over a 10-year period using the Board's assumed long-term rate of return. The Governor shall include funds to support payment of such Board-approved, supplemental employer contribution rates in the budget submitted to the General Assembly.
Retirement Contribution Rates
Rates*
FY 2010
2009 Board Certified
RatesFY 2010-12*
Appropriations Act
2010-2011
Appropriations Act
2011-2012
2010 Interim Valuation Results
State Employee 11.26% 13.46% 7.13% 7.08% 18.29%
Teacher13.81% 17.91% 8.93% 10.16% 22.41%
Locals** 13.00% 13.00% n/a n/a n/a
Locals w/o Haz. Duty**
11.90% 11.90% n/a n/a n/a
Locals with Haz. Duty**
15.0% 15.0% n/a n/a n/a
*Current FY 2010 rates are based on assumptions applied in the 2009 Appropriations Act (8% rate of return, 3% inflation rate, and a 30-year amortization). Board certified rates are based on the following assumptions (7.5% rate of return, 2.5% inflation rate, and a 20-year amortization period). These rates do not reflect the suspension of payments in the 4th quarter.** Average rate for localities.Contribution rates include the 5% member contributions.
19
Teacher Contribution Rates FY ‘84 – ‘14
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
22.0%
24.0%
26.0%
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
• Above rates include the 5% member contributions paid by employers.
• Assumes 7.00% rate of return and 2.50% inflation rate.
20
Local Government Contribution Rates (Averaged)
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
22.0%
24.0%
26.0%
2006 2008 2010
• Above rates include the 5% member contributions paid by employers.
• Assumes 7.00% rate of return and 2.50% inflation rate.
2010 Legislation
2010 Legislation
HB 1189/SB 232 Creates new plan design provisions (Plan 2) for state,
teachers and local government employees hired on or after July 1, 2010
Creates a new plan (Plan 2) for Optional Retirement Plan (ORP) members hired on or after July 1, 2010.
Does not affect current members or current retirees, who are under Plan 1. Members who left employment and did not take a refund are deferred members and remain in Plan 1.
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2010 Legislation
VRS Plan 1 VRS Plan 2
Average Final Compensation
Average of 36 highest consecutive months of creditable compensation
Average of 60 highest consecutive months of creditable compensation
Member Contributions (DB Plan)
Employee or employer contributes 5% employee contribution
State employees contribute 5% on pre-tax salary reduction basis.Schools/political subdivisions employees may contribute some or all of the 5%, depending upon the election by the employer
Member Contributions (ORP Plan)
10.4% employer contribution 8.5% employer contribution and 5% member contribution on a pre-tax basis.Higher education may increase the employer contribution to 8.9% provided it is paid with non-state funds.
Normal Retirement Age
Age 65 Social Security Normal Retirement Age
SPORS, ValORS and political subdivision hazardous duty: Age 60
Same as Plan 1
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2010 Legislation
VRS Plan 1 VRS Plan 2
Retirement Multiplier
VRS: 1.7%SPORS: 1.85%VaLORS: 1.7% or 2.0%Sheriffs: 1.85%Political subdivision hazardous duty: 1.7% or 1.85%, depending upon election
Same.
Unreduced Retirement
VRS: Age 65 with at least 5 years of service or age 50 with at least 30 years of service
VRS: Normal Social Security retirement age with at least five years of service credit or when age and service equal 90
SPORS, VaLORS, political subdivision hazardous duty: Age 60 with at least five years of service or age 50 with at least 25 years of service
Same.
JRS: Age 65 with weighted service equal to at least 5 years of service or age 60 with weighted service equal to at least 30 years of service
Same.
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2010 Legislation
VRS Plan 1 VRS Plan 2
Reduced Retirement
VRS: Age 55 with at least 5 years of service or age 50 with at least 10 years of service
VRS: Age 60 with at least five years of service
SPORS, VaLORS, political subdivision hazardous duty: Age 50 with at least five years of service
Same.
JRS: Age 55 with weighted service equal to at least 5 years of service
Same.
COLA Matches first 3 percent increase in the Consumer Price Index-Urban and one-half of the remaining increase up to a maximum COLA of 5 percent, when provided
Matches first 2 percent increase in the Consumer Price Index-Urban and one-half of the remaining increase up to a maximum COLA of 6 percent, when provided
26
2010 Legislation
Employer Paying 5%
Plan 1
Plan 2 Employee
Paying 5%
Plan 2 Employee Paying a
Share of the 5%
Schools 144 7 1
Municipals 223 64 8
Authorities/
Commissions
181 49 1
Total 548 120 10
Proposed Savings From Pension Reform
(Teachers)
-3%
-2%
-1%
0%
1%
2%
2012-14 2014-16 2016-18 2018-20
27 Above chart assumes all Plan 2 members pay the 5% member contribution.
Line of Duty Act The Line of Duty Act (LODA) Fund can be found in Item 258
of the Budget Bill; imposes annual contributions upon state and local agencies, beginning July 1, 2011.
LODA provides health insurance and death benefits for hazardous duty employees and volunteers and their families upon death or disability in the line of duty.
A new LODA Fund comes under VRS’ investment management. Contributions will be made by state and localities.
Contribution rates will be calculated by VRS Board of Trustees in mid-December.
Localities may opt out and provide for separate financing.
Upcoming Issues
Pending Changes in Pension Accounting
Rules GASB has issued “preliminary views” Final rules to be issued in two years Changes affecting local governments and school
boards:1. Pension liabilities/expenses go from footnotes to
balance sheet2. Pension assets would be marked to market causing
significant volatility in annual reporting3. Cost-sharing pension plans (VRS Teacher Plan) must
allocate liabilities proportionally to each employer
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Thank you!