VRS Overview VASBO Spring Conference

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1 VRS Overview VASBO Spring Conference Barry C. Faison, VRS Chief Financial Officer June 1, 2017

2 Our Vision Vision To be the trusted leader in the delivery of benefits and services to those we serve. 2

3 VRS Mission Mission VRS delivers retirement and other benefits to Virginia public employees through sound financial stewardship and superior customer service. 3

4 VRS Commitment Serving those who serve others. Helping members prepare for tomorrow, today. 4

5 Did You Know? How much was the Gross Benefit on the retiree payroll for May 1, 2017? A. $276.3 million B. $362.6 million C. $258.9 million D. $298.2 million 5

6 Did You Know? How much was the Gross Benefit on the retiree payroll for May 1, 2017? A. $276.3 million B. $362.6 million C. $258.9 million D. $298.2 million 6

7 Agenda VRS Overview VRS Investments Update Funded Status and Contribution Rates GASB Update Hybrid Retirement Plan Update myvrs Changes Employer Resources 7

8 VRS Overview

9 VRS Overview VRS is the 20 th largest public or private pension system in the U.S. and the 44 th largest public or private pension system in the world with more than 674,000 members, retirees and beneficiaries As of Jan. 31,

10 VRS Total Membership Plan 1 Plan 2 Hybrid Total Teachers 85,419 35,734 29, ,506 Political Subdivisions 54,659 32,062 19, ,590 State Employees 44,335 18,070 15,247 77,652 State Police Officers Retirement System (SPORS) 1, ,910 Virginia Law Officers Retirement System (VaLORS) 4,261 4,631 8,892 Judicial Retirement System (JRS) Total Active Members 190,278 91,128 64, ,976 Total Active Members Retirees/ Beneficiaries Inactive/ Deferred Members VRS Total Population 345, , , , As of Jan. 31, 2017

11 VRS Investments Update

VRS Asset Allocation as of March 31, 2017 Fixed Income $11.9 16.4% Total Fund Market Value = $72.4 billion Credit Strategies $12.8 17.7% Real Assets $9.3 12.9% Private Equity $6.

12 VRS Asset Allocation as of March 31, 2017 Fixed Income $ % Total Fund Market Value = $72.4 billion Credit Strategies $ % Real Assets $ % Private Equity $ % Strategic Opportunities Portfolio $ % Public Equity $ % Cash $ % (Dollar Amounts in Billions/Percent of Total Fund) Source: Bank of New York Mellon 12

13 Fund Performance VRS Return (As of March 31, 2017) 1-year 10.7% 3-year 6.3% 5-year 8.2% 10-year 5.1% 15-year 6.8% 20-year 7.4% 25-year 8.3% 13 Source: Bank of New York Mellon

14 VRS Net Position $80 $72.4 $70 $68.2 $68.2 $66.2 $60 $58.3 $55.1 $58.4 Assets in Billions $50 $40 $30 $26.9 $31.7 $35.7 $40.8 $48.7 $44.1 $40.0 $37.7 $34.4 $34.7 $42.6 $47.7 $54.6 $53.3 $22.2 $20 $10 $ Fiscal Year 14

15 Funded Status and Contribution Rates

Funded Status: Teachers New GASB accounting rules reflect funded status on the market value basis beginning in 2014 The funded status for FY 2016 based on the actuarial value of assets was

4 Billion using Market Assets 0% Historical Funded Status - Actuarial Value of Assets up to 2013 & Market Value of Assets 2014 Forward Projected Funded Status using Market Value of Assets

16 Funded Status: Teachers New GASB accounting rules reflect funded status on the market value basis beginning in 2014 The funded status for FY 2016 based on the actuarial value of assets was 70.6% 120% 100% 80% 60% 40% 20% Teacher Plan Unfunded Liability as of 6/30/16 $12.8 Billion using Actuarial Assets $13.4 Billion using Market Assets 0% Historical Funded Status - Actuarial Value of Assets up to 2013 & Market Value of Assets 2014 Forward Projected Funded Status using Market Value of Assets (New GASB Standard) Notes: Projected years investment returns assume 7.0% with 2.5% inflation rate. 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

17 Teacher Employer Contribution Rates Phase-in of VRS Board-certified Rates Agreed to in 2012 Legislative Session Expected Employer Rates Based on Phase-in Schedule Employer Rates Based on 2017 Budget Bill & % 79.69% 89.84% 89.84% 100% 14.50% 14.06% 14.66% 14.66% TBD 14.50% 14.06% 14.66% 16.32%* TBD Above contribution rates are net of employee contributions. Teacher rates for FY 2016 were lowered due to additional contribution of $192.9 million applied to deferred contribution balance during FY The subsequent rates for FY will also reflect the benefit of the accelerated payment received and will generally be 0.50% lower than previously anticipated. * Reflects a rate that is 100% of the actuarially calculated contribution rate. 17

18 OPEB Contribution Rates OPEB Program Group Life Insurance Health Insurance Credit Virginia Sickness and Disability Program (VSDP) Virginia Local Disability Program (VLDP) Employee 0.79% 0.79% Employer 0.52% 0.52% Total 1.31% 1.31% State Employees 1.18% 1.18% Teachers 1.11% 1.23% * Non-Professional School Board Members and Political Subdivision Employees Varies by Employer Varies by Employer Covered Payroll 0.66% 0.66% Teachers 0.31% 0.31% Political Subdivision Employees 0.60% 0.60% * Reflects a rate that is 100% of the actuarially calculated contribution rate. 18

19 GASB Update

GASB 74 and GASB 75 In June 2015, GASB released two statements aimed at improving financial reporting by state and local governments of other postemployment benefits (OPEB), such as group life and

20 GASB 74 and GASB 75 In June 2015, GASB released two statements aimed at improving financial reporting by state and local governments of other postemployment benefits (OPEB), such as group life and retiree health insurance. Statement No. 74 (applies to Plan), Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans Statement No. 75 (applies to Employer), Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions 20

21 GASB 74 and GASB 75 The disclosure requirements of GASB 74 and 75 will be similar to the disclosure requirements for pension benefits under GASB 67 and GASB 68: Total OPEB Liability (TOL), Net OPEB Liability (NOL), OPEB Expense (OE), Deferred Inflows, Deferred Outflows, etc. Proportionate share of the total for employers in cost-sharing plans Effective date for VRS plans (GASB 74) is the fiscal year ending June 30, 2017 Effective date for VRS employers (GASB 75) is the fiscal year ending June 30,

22 GASB 74/75 Implementation Centralize GASB 74/75 data process Engage VRS actuary to create plan-wide data under GASB 74 Prepare comprehensive reports including GASB 75 data for all covered employers Compute proportionate share for cost-sharing plans Prepare separate GASB 75 reports for each political subdivision, where appropriate Expand VRS webpage for new information Prepare implementation guidance, sample journal entries, and sample note disclosures with RSI 22

23 GASB Resources Supplement existing GASB 67 and GASB 68 resources GASB 74 and GASB 75 Statements GASB 74 and GASB 75 Implementation Guide when issued Complete GASB 74 report from VRS Actuary for the VRS plans Complete GASB 75 report from VRS Actuary for all covered employer groups Selected presentations on GASB 74 and GASB 75 23

24 GASB Resources Sample journal entries for each employer group Sample note disclosures for each employer group GASB 68 and GASB 75 Reports from VRS with Audit Opinion from the Auditor of Public Accounts Pension: Selected state agencies Teacher cost-sharing pool Political subdivision plans OPEB: GLI cost-sharing pool HIC cost-sharing pool and locality plans VLDP teacher and locality cost-sharing pools 24

25 Hybrid Retirement Plan

26 Hybrid Retirement Plan 67,242 active Hybrid Retirement Plan members as of April 1, Total combined balance in the Hybrid 401(a) Cash Match Plan and the Hybrid 457 Deferred Compensation Plan is $148 million Due to auto-escalation there are now 53,276 hybrid members making voluntary contributions, or percent Of those, 12,714 hybrid members actively elected a voluntary contribution There are 35,601 School Division members* in the Hybrid Retirement Plan, making up 52.9% of all members * School Division members include Teachers, Turn Around Specialists, Administrative/Support and School Superintendents.

27 Hybrid 457 Plan: Voluntary Participation Rate As of April 1, 2017, 79.23% of Hybrid members (53,276 out of 67,242) have a voluntary contribution percentage with ICMA-RC % have an Active Election above the 0.5% auto-escalation percentage. 100% 90% 80% 85.11% 79.23% 70% 60% 50% 40% 30% 20% 10% 3.97% 6.60% 7.99% 8.99% 9.11% 10.57% 12.61% 14.48% 15.20% 17.39% 18.91% 0% 27 Voluntary Participation Rate Active Election Participation Rate (not auto-escalated) * Includes voluntary contributions members except for those who were auto-escalated from 0.0% to 0.5%.

Hybrid 457 Plan: Voluntary Contributions This pie

who have a voluntary contribution* by March 15,

60% * Includes members electing voluntary

who were auto-escalated. 0.39% 0.50% 0.91% 0.

28 Hybrid 457 Plan: Voluntary Contributions This pie chart represents an analysis of active members who have a voluntary contribution* by March 15, % 76.40% 23.60% * Includes members electing voluntary contributions up until March 15 as well as those who were auto-escalated. 0.39% 0.50% 0.91% 0.99% 0.90% 0.92% Voluntary Contribution Percentages 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 28

29 Changes

myvrs Features Annual Member Benefit Statement Secure login to protect your personal information New goal-based retirement planner Refreshed benefit

30 myvrs Features Annual Member Benefit Statement Secure login to protect your personal information New goal-based retirement planner Refreshed benefit estimator Online purchase of prior service Online refund requests Streamlined user experience Mobile-friendly design Counseling tips at key decision points 30

31 Employer Resources

32 Sign Up for Employer Update Monthly e-newsletter Provides updates on policy, procedures, GASB, legislation, upcoming events Go to the Employer menu, select Employer Update and sign up 32

33 View the Financial Reporting Section View the Financial Reporting section under Employer tab: 33

34 View the Financial Reporting Section 34

business process documentation Train on VRS products, services and process (inperson, webinar and e-

35 Employer Resources VRS Employer Support Team Respond to phone inquiries from employers Training and Education Department (Members, employers and VRS staff) Design and manage forms Develop and maintain business process documentation Train on VRS products, services and process (inperson, webinar and e- learning) Counsel members Respond to customer s Prepare service and disability retirement estimates 35

36 Employer Representatives Employer Representative Program Manager Andrew Feagans Political Subdivision Representatives School Division Representatives State Agency Representative Employee Coverage Coordinator Rohn Brown Julia Minnigh Marcia Edmonds ZaeAnne Allen Marie Daniels Beth Valdrighi

37 Employer Resources Payroll Guide 37 EZLink Guides & Videos Voluntary Contributions Toolkit Handbook for Members ICMA-RC Employer Support: 1-VRS-DC-PLAN1 ( ), select option 3

38 ICMA-RC Plan Specialists 38

39 39 Thank you!

VRS Overview Presented to Virginia Association of School Business Officials

VRS Overview Presented to Virginia Association of School Business Officials Patricia S. Bishop, VRS Director Barry C. Faison, VRS Chief Financial Officer October 13, 2017 Did You Know? How much does VRS