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Virginia Association of Counties. November 9, 2009 Robert P. Schultze Director. Agenda. VRS Overview Funded Status and Rate Setting What’s on the Horizon. VRS Overview. VRS Overview. VRS is the 24 th largest public or private pension system in the U.S. - PowerPoint PPT Presentation
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Virginia Association of Counties
November 9, 2009Robert P. Schultze
Director
2
Agenda
• VRS Overview
• Funded Status and Rate Setting
• What’s on the Horizon
VRS Overview
4
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.
55
VRS Total Membership
Teachers 148,461
Political Subdivisions 105,404
State Employees 80,808
State Police Officers’ Retirement System (SPORS) 1,826
Judicial Retirement System (JRS) 416
Virginia Law Officers’ Retirement System (VaLORS) 10,014
Total Active Members 346,929
Retirees/Beneficiaries 141,746
Inactive/Deferred Members 107,551
VRS Overall Impact 596,226
As of June 30, 2009
66
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
Fiscal Year
Tota
ls
State Teacher Localities
Active Members
77
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
Fiscal Year
Tota
ls
State Teacher Localities
Retirees
8
New Retirees Added to Payroll by Fiscal Year
0
500
1000
1500
2000
2500
3000
3500
4000
4500
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
State Teachers Pol. Subs
9
Average Age, Service, Pay and Benefits (2008)
State Teachers Local
Actives:Average Age 47.36 44.45 45.2Active Service 12.68 11.17 10.0Avg. Salary $46,112 $46,650 $38,276
Retirees:Avg. Age @ Retirement 60.76 59.36 61.30Avg. Service @ Retirement 24.22 24.63 18.60Avg. Benefit @ Retirement 41.2% 41.9% 31.6%Avg. Benefit - Current Retirees $15,901 $19,895 $11,235
10
Pension Benefits for Employees of Local
GovernmentsGeneral Employees Full benefits at age 50 with 30 years of service
AFC x 1.7% x Yrs. of Service = Annual Benefit
Example: $50,000 x .017 x 30 Yrs. = $25,500
11
Pension Benefits for Employees of Local
GovernmentsHazardous Duty (LEOS) Full benefits at age 50 with 25 years of service
AFC x 1.7% x Yrs. Of Service + Hazardous Duty Supplement = Annual Benefit
Or
AFC x 1.85% x Yrs. Of Service + Hazardous Duty Supplement = Annual Benefit
Example: $50,000 x .0185 x 25 Yrs. + $12,456 = $35,581
Rate Setting and Funding Benefits
13
Funding VRS Benefits
• 68% of benefit costs funded by investment earnings
• 32% of benefit costs funded by employee/employer contributions
1414
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
$47.8
$0
$10
$20
$30
$40
$50
$60
As
se
ts in
bill
ion
s
1996 1998 2000 2002 2004 2006 2008 10/19/09*
* Estimate as of 10-19-09
151515
VRS Fiscal Year Returns
-25.0
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.019
89
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
% R
etu
rn
16
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%
17
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)
18
Funded Status: Teachers
0%
20%
40%
60%
80%
100%
120%
1994 1998 2000 2002 2004 2006 2008 2010 2012
Assumptions: • FY 2009 investment return is -21.1%•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%•Actual value of assets subject to 5-year smoothing with no corridor.
19
Funded Status: Local Governments
0%
20%
40%
60%
80%
100%
120%
1994 1998 2000 2002 2004 2006 2008
2008 Aggregate Funded Ratio – 565 Plans
Note: 2008 average funded ratio of 565 plans = 95.7%
20
Funded Ratio for Top 10 Localities (2008)
Locality Asset Value (in millions) Funded Ratio
City of Virginia Beach $1,069 83.8%Henrico County $757 85.3%Prince William County $621 88.7%Chesterfield County $533 86.7%City of Chesapeake $508 86.8%City of Alexandria $330 88.5%City of Hampton $325 79.9%Loudoun County $291 87.5%City of Lynchburg $198 74.5%City of Portsmouth $189 94.8%
ProjectedContribution
Rates
22
Contribution Rates
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
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
Teachers
Locals
• 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 also are paid by employers.
23
Employer Contribution Rates
Current Funded Rates*
FY 2010
2007 Board Certified Rates**
2009 Board Certified Rates**
State Employee
6.26% 8.02% 8.46%
Teacher 8.81% 11.84% 12.91%
*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.
24
Governor’s 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.
25
Governor’s Budget Reduction Plan
Reduce State and Teacher Employer Pension Contributions for 4th Quarter FY 2010
Employer Group Projected Fourth Quarter Employer Contribution
(GF and NGF)
Funds Captured in Governor’s Reduction
Plan*
State Employees $79.58 million $52.7 million
Teachers $179.4 million** $51.3 million***
OPEBS**** $78.97 million $30.90 million
Total Pension and OPEB Reduction
$337.95 million $134.9 million
*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.
26
Governor’s 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
PolicyAlternatives
28
Plan Design Changes Identified by PWC & JLARC
Applicable Savings/Cost Avoidance
Benefit Change Current Members
Non-vested
members
New Hires
Current Retirees
Immediate Long-term
Employee-paid Member Contribution (2%)*
√ √ √ √
Increase retirement age 60** √ √ √
Reduce COLA for new retirees***
√ √ √ √
Combination Plan √ √
Cash Balance Plan √ √
Defined Contribution Plan √ √
*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 retirementeligibility 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 retirement—and therefore loss of experienced employees—just prior to the effective date.
29
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
30
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.
31
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 COLA’s• Increased use of hybrid plans• Little discussion of switching to defined contribution
plans• Growing media and popular resentment toward
public employee retirement benefits.
Thank you!