Virginia Association of School Superintendents

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Virginia Association of School Superintendents

• October 14, 2009
• Robert P. Schultze
• Director

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Agenda

• VRS Overview
• Funded Status and Rate Setting
• Whats on the Horizon

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VRS Overview
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VRS Overview

• VRS is the 24th largest public or private pension
  system in the U.S.
• There are almost 600,000 members, retirees and
  beneficiaries.

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VRS Total Membership
As of June 30, 2009
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Active Members
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7
Retirees
7
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New Retirees Added to Payroll by Fiscal Year
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Net Assets Available for Benefits
Estimate as of 9-21-09
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VRS Fiscal Year Returns

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Investment Returns

• FY2009 Return on VRS Trust Fund was negative
  21.1
• Actuarially assumed return was 7.50
• Returns needed over various periods to make up
  the loss
• One year 46.5
• Three years 19.2
• Five years 14.4

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Rate Setting and Funding Benefits
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Funding VRS Benefits

• 68 of benefit costs funded by investment
  earnings
• 32 of benefit costs funded by employee/employer
  contributions

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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)

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Funded Status Teachers
Revised October 15, 2009

• Assumptions
• All projected years investment return is 7.5 and
  2.5 inflation rate with 20-year amortization
  period.
• Employer contribution rates for FY 2009 and FY
  2010 are fixed at 8.81
• Funded status projections based on actuarial
  value of assets with no AVA corridor.

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Cash Flow Projection 10 Years
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ProjectedContribution Rates
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Teacher and State Contribution Rates FY 84 14
Teachers
State Employees

• Projected rates are based on an 8 rate of
  return, a 3 inflation rate and a 30-year
  amortization.
• These employer rates do not include the 5
  member contributions that are also paid by
  employers.

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Employer Contribution Rates(Revised October 15,
2009)

• Current funded 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).
• Note These employer rates do not include the 5
  member contributions that are also paid by
  employers.

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Governors Budget Reduction Plan

• Reduce state and teacher employer contributions
  to VRS April June of 2010.
• Reduction will not affect benefit provisions or
  the accumulation of contributions in member
  accounts
• The state will pay the 5 member contributions
  that are picked up and paid by employers
• Suspend contributions for OPEB programs for April
  June of 2010, except for local government
  health insurance credit.

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Governors Budget Reduction Plan
Removes Federal, Trust and Agency, Internal
Service, and Transportation funds from the NGF
amounts VRS data includes local funds as well
as instructional and support staff Includes
only those costs included in the SOQ formula
VRS data includes political subdivisions
and local funds, as well as instructional and
support staff.
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Governors Budget Reduction Plan

• VRS had planned to receive about 2.4 billion in
  contributions in the budget approved by the
  General Assembly for FY2010
• Reduced state and local contributions are
  estimated to be about 338.0 million
• Reduction represents a 14.1 reduction in
  contributions to the VRS Trust Fund

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PolicyAlternatives
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Plan Design Changes Identified by PWC JLARC
PWC JLARC assumed that the contributions would
be phased in over a four-year period. PWC and
JLARC did not apply retirement age design change
to SPORS and VALORS. JLARC PWC suggested
that the General Assembly could consider
exempting active employees within several years
of retirement eligibility from this change. Such
an exemption could help limit the extent to which
employees in this group may have to alter their
retirement plans. This exemption could also help
avoid a sudden increase in employee
retirementand therefore loss of experienced
employeesjust prior to the effective date.
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Pension Envy

• Only 60 of workers in private-sector have access
  to an employer-sponsored retirement plan
• One-third of those eligible do not participate
  (leaving only 40 with coverage)
• Fewer than one in five have a traditional pension
  (DB) benefit
• Some employers have suspended or eliminated their
  401(k) match

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Reliance on Social Security

• 56 of those on Social Security rely on it for
  more than half of their income.
• For 30 of Social Security recipients, Social
  Security accounts for 90 of their income.
• For 19 of Social Security recipients, Social
  Security is their sole source of income.

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Trends in Other States

• Higher normal retirement age
• Higher mandatory employee contributions
• Longer final average salary periods
• Lower retirement multiplier (future service)
• Stricter service purchase provisions
• Smaller COLAs
• Increased use of hybrid plans
• Little discussion of switching to defined
  contribution plans
• Growing media and popular resentment toward
  public employee retirement benefits.

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VRS Update
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Creditable Compensation

• Issue
• Questions were raised about the employer
  contribution to supplemental retirement plans and
  how these contributions should be treated in
  determining members' creditable compensation.
• OAG Opinion
• March 1, 1962 OAG Opinion "The amounts
  designated by an employee to be withheld by his
  employer for the purchase of 403(b)
  tax-sheltered annuities would be considered as
  part of the employee's salary in determining
  creditable compensation . . .
• Status
• Conducted a review of VRS guidance over the
  last 25 years.
• Will draft a letter to the OAG for an opinion
  in cooperation with Craig Woods

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Thank you!