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Virginia Government Finance Officers
Association
October 22, 2009
Barry C. Faison
Chief Financial Officer
2
Agenda
• VRS Overview
• Funded Status and Rate Setting
• What’s on the Horizon
VRS Overview
44
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
55
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$47.0
$0
$10
$20
$30
$40
$50
$60
As
se
ts in
billio
ns
1996 1998 2000 2002 2004 2006 2008 09\22\09*
* Estimate as of 9-21-09
666
VRS Fiscal Year Returns
-25.0
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
% R
etu
rn
7
Investment Returns
• FY 2009 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%
Rate Setting and
Funding Benefits
9
Funding VRS Benefits
• 68% of benefit costs funded by investment earnings
• 32% of benefit costs funded by employee/employer contributions
101010
Cash Flow Projection – 10 Years
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
FY2
01
0
FY20
11
FY20
12
FY20
13
FY20
14
FY20
15
FY20
16
FY20
17
FY20
18
FY20
19
Cash Flow Projection - 10 Years (in millions)
Net Cash Out Div. & Int. Distributions
11
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.
12
OPEB Contribution Rates
Current Funded Rates*
FY 2010
Board Certified Rates**
2009 Board Certified Rates**
Group Life 0.79% 0.89% 1.11%
HIC - State Employee
1.00% 1.22% 1.06%
HIC - Teacher 1.04% 1.12% 1.08%
*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).
13
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 and other employers 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.
Policy
Alternatives
15
Plan Design Changes Identified
by PWC & JLARCApplicable 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 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 retirement—and therefore loss of experienced employees—just prior to the
effective date.
Thank you!