Virginia Retirement System Overview Presented to: House Appropriations Compensation and Retirement Subcommittee

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Dwayne Rolf Gardner
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1 Virginia Retirement System Overview Presented to: House Appropriations Compensation and Retirement Subcommittee Presenter: Patricia S. Bishop Director of the Virginia Retirement System Date: January 18, 2018

2 Key Messages Pension reforms have effectively addressed the cost of benefits. Hybrid Retirement Plan introduced risk sharing with employees and reduced potential for future unfunded liabilities. Savings from pension reforms will be fully realized in the future as the hybrid plan becomes the dominant plan. Legacy unfunded liability being amortized over closed 30-year period with 26 years remaining. Future liabilities amortized over shorter 20- year closed periods. 2

3 Key Messages Governor and General Assembly accelerated: Statutory commitment to fund 100% of actuarially determined contributions Repayment of deferred contributions from biennium Fully repaid State plans Significant infusion ($193 million) into the Teacher plan Actions improve health of plans and avoid adding future costs to the plans. Funded status of statewide plans has stabilized and is expected to trend upwards with the actions taken by the Governor and General Assembly to get to 100% of Board-certified rates, given experience aligns with assumptions. 3

4 VRS Total Membership Plan 1 Plan 2 Hybrid Total Teachers 80,576 34,148 37, ,154 Political Subdivisions 50,959 31,688 25, ,779 State Employees 41,332 17,104 18,940 77,376 State Police Officers Retirement System (SPORS) 1, ,891 Virginia Law Officers Retirement System (VaLORS) 3,776 4,913 8,689 Judicial Retirement System (JRS) Total Active Members 178,161 88,537 81, ,313 Total Active Members Retirees/ Beneficiaries Inactive/ Deferred Members VRS Total Population 348, , , ,372 As of December 31,

5 Where VRS Retirees Live 86% of VRS retirees remain in Virginia North Carolina 3% Florida 2% South Carolina 1% Maryland 1% Tennessee 1% Other States/Territories 6% 5

6 VRS Financial Overview

7 Source of Pension Funding Source of Defined Benefit Plan Funding 33% 67% Investment Returns Member and Employer Contributions 7

8 Assets in Billions VRS Net Position $80 $70 $68.1 $68.1 $66.2 $75.1 $60 $58.3 $55.1 $54.6 $53.3 $58.4 $50 $40 $30 $35.7 $31.7 $26.9 $40.8 $40.0 $37.7 $34.4 $34.7 $44.1 $48.7 $42.6 $47.7 $22.2 $20 $10 $ Fiscal Year 8

9 % Return VRS Fiscal Year Returns FY 2017 return as of June 30, 2017, is 12.1% Investment Return Assumption 25-year return is 8.3% (net of fees) as of June 30, Fiscal Year

10 Hybrid Retirement Plan Features and Tools

11 Hybrid Retirement Plan Overview Combines features of a defined benefit plan and a defined contribution plan, effective Jan Provides for risk-sharing between employer and employee with the introduction of the DC component Reduces potential for future unfunded liabilities Covers nearly all new VRS members, except hazardous duty Becomes dominant plan over the next years Defined Benefit Provides reduced benefit multiplier that serves as foundation for the future retirement benefit Increased age/service requirements Defined Contribution Provides tax-deferred savings Encourages employee savings by including employer match 11

12 Hybrid Retirement Plan Members by Employer Type 50,000 45,000 40,000 35,000 44,314 17% 82,253 Active Hybrid Retirement Plan members as of January 1, ,000 25,000 20,000 15,000 42% 18,643 21% 19,296 29% 10,000 5, % 34% 42% 42% 37% School Divisions Political Subdivisions State Agencies Not Participating in Voluntary Voluntary Members - 0.5% Voluntary Members - 1% and Above 12

13 Hybrid 457 Plan Voluntary Contribution Elections Active members who have a voluntary contribution as of December 15, 2017 Active members with a voluntary contribution greater than 0.5% 28% 65% 35% 2% 2% 1% 0% 1% 1% Voluntary Contribution Percentages Numbers are rounded and may not add up to 100% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 13

14 Hybrid Retirement Plan Auto-Escalation Implemented January 1, 2017; only 3.1% of members opted out. SmartStep - Allows Hybrid Retirement Plan members to auto-escalate at a time they choose Enhanced Voluntary Contribution Messaging Provides messaging to members to encourage action 14

15 Funded Status and Contribution Rates

16 Virginia Retirement System Unfunded Liabilities by Plan (Dollars in Billions) 6/30/2016 Funding Basis Smoothed Assets 6/30/2016 Funding Basis Market Assets 6/30/2017 Funding Basis Smoothed Assets 6/30/2017 Funding Basis Market Assets Plan State $6.2 $6.5 $5.7 $5.5 Teacher $12.8 $13.4 $12.3 $11.9 Political Subdivisions $2.9 $3.3 $2.6 $2.3 Total VRS $21.9 $23.2 $20.6 $19.7 SPORS $0.3 $0.4 $0.3 $0.2 VaLORS $0.8 $0.8 $0.6 $0.6 JRS $0.2 $0.1 $0.1 $0.1 Grand Total $23.2 $24.5 $21.7 $20.7 Notes: Political Subdivision in aggregate do not include political subdivisions with no active members. 16

17 Funded Status and Pension Reforms Since 2012, State and Teacher plans have experienced a 10% improvement in funded status and Political Subdivisions in aggregate have seen a 15% improvement. 17

18 VRS Retirement System Employer Contribution Rates (% of Total Covered Payroll) Fiscal Years 2017/2018 Fiscal Years 2019/2020 System Board Certified General Assembly Approved Board Certified State 14.46% 13.49% 13.52% Teachers 16.32% 14.66%/16.32% 15.68% SPORS 28.99% 28.54% 24.88% VaLORS 22.21% 21.05% 21.61% JRS 45.15% 41.97% 34.39% Contribution rates are net of the 5% and 4% member contribution rates for Plan 1, Plan 2, and Hybrid plan respectively. 18

19 State Plan Projected Employer Contribution Rates Including Estimated Defined Contribution Hybrid Match Investment Return Sensitivity 19 Assumes employer match to defined contribution portion of the hybrid plan of 1.83% of payroll for hybrid plan members. Rates above are for alternative investment return scenarios only. Liabilities are calculated at 7% under all scenarios. Liabilities are calculated at 7% under all scenarios. Amounts are net of member contributions.

20 Teacher Plan Projected Employer Contribution Rates Including Estimated Defined Contribution Hybrid Match Investment Return Sensitivity 20 Assumes employer match to defined contribution portion of the hybrid plan of 1.76% for members in the hybrid plan. Rates above are for alternative investment return scenarios only. Liabilities are calculated at 7% under all scenarios. Amounts are net of member contributions.

21 OPEB Contribution Rates Fiscal Years 2017/2018 General Assembly Board Certified Approved Fiscal Years 2019/2020 Plan Funded Status System Board Certified HIC State 1.18% 1.18% 1.17% 8.02% HIC Teachers 1.23% 1.11%/1.23% 1.20% 7.14% VSDP 0.66% 0.66% 0.62% % Group Life 1.31% 1.31% 1.31% 46.62% HIC State contribution rates include State, SPORS, VaLORS, ORP, and UVA members. VSDP contribution rates based upon covered payroll and include long-term disability and long-term care benefits. Some employers may require employees to contribute a portion of Group Life rate. 21

22 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

23 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 23

24 VRS OPEB Liabilities by Employer June 30, 2017 Net OPEB Liability (NOL) ($Thousands) Plan State Teacher Political Subdivisions NOL as of 6/30/17 Group Life Insurance $456,366 $646,246 $402,228 $1,504,840 Health Insurance Credit $949,489 $1,268,611 $16,968 $2,235,068 Virginia Sickness and Disability Program ($205,321) $0 $0 ($205,321) Virginia Local Disability Program $0 $594 $563 $1,157 Line of Duty Act (LODA) $159,605 $0 $103,186 $262,791 Total OPEB NOL $1,360,139 $1,915,451 $522,945 $3,798,535 Notes: State includes state employees regardless of pension plan. State HIC also contains state-funded local positions which is considered "special funding situation" for GASB. 24

25 Comparison of Unfunded Liabilities 25 Net pension liabilities and Net OPEB liabilities as of 6/30/16.

26 Line of Duty Act Update

27 LODA Administrative Roles A partnership of VRS and DHRM 27

28 Websites & Addresses Website: Website:

29 LODA Resources Employer Resources: Welcome Video LODA Overview for Employers Participant Resources: Welcome Video Tutorial: How to Apply for LODA Benefits Virginia LODA Participant Guide LODA Overview for Participants 29

30 Helping Members Plan for Tomorrow, Today!

Financial Wellness Features Courses Learn

Games Play financial trivia and real-world

set goals and keep your finances on track

pay for school Student Loan Snapshot Track

31 Financial Wellness Features Courses Learn the fundamentals of money management Calculators Experiment with mortgage, budget, auto, student loan calculators Games Play financial trivia and real-world simulator games Budget Plan for expenses, set goals and keep your finances on track Live Webinars Watch video webinars with financial wellness experts Scholarship Search Find quality scholarships to help pay for school Student Loan Snapshot Track all your student loans in one place in five minutes or less 31

32 Modernization

33 Multi-year Modernization Project Guiding Principles Web-based, self-service for members & employers Reliable and efficient delivery of member benefits Paperless, to the extent possible Safeguard member confidence and VRS reputation Security of members data and personal information Phase 1: 2009 Phase 2: 2010 Phase 3: 2012 Hybrid Implementation Phase 4:

34 myvrs Vision Leverage technology to improve outcomes for VRS members Provide a comprehensive view of benefits Help members grasp future income needs in sufficient time to make adjustments Offer intuitive tools and counseling to better prepare for retirement 34

(3/2016) New Member Portal with Security Enhancements (3/2016)

35 Modernization Phase 4 Accomplishments Refunds Refund Calculation Engine (7/2015) Refunds Disbursement (12/2015) Online Refunds (3/2016) New Member Portal with Security Enhancements (3/2016) Benefits Calculation Engine (4/2016) Online Retirement Planner (1/2017) 35

36 Modernization Phase 4 Accomplishments Online Purchase of Service Functionality (3/2017) ORPHE/ORPPA Functionality (12/2017) Retiree Portal (6/2017) Online Financial Education (12/2017) 36

Modernization Phase 4 Releases Coming Retirement Processing (10/2018) Disbursements All remaining functionality Online Retirement (Spring 2019)

37 Modernization Phase 4 Releases Coming Retirement Processing (10/2018) Disbursements All remaining functionality Online Retirement (Spring 2019) New portal functionality Beneficiary management Online MBP Miscellaneous VLDP Actuarial Data Payment/Health Insurance Maintenance (Spring 2019) 37

38 Conclusion 38

39 2018 General Assembly Session

40 VRS-Related Bills Bill Number HB 66 HB 846 HB 863 HB 1107 HB 1326 HB 1392 Requires that a school division provide a Health Insurance Credit of $4 per year of service to all employees, not just teachers, who retire with at least 15 years of creditable service. Makes various technical amendments in Title 51.1 relating to VRSadministered benefits (mirrors SB 248). Bill requested by the VRS Board of Trustees. Applies an annual cost-of-living adjustment to the Health Insurance Credit benefit of any state employee who retired with at least 30 years of creditable service (mirrors SB 321). Requires VRS to invest the Medicaid Legacy Investment Fund alongside the VRS Trust Fund. Adds E-911 dispatchers to the list of local employees who are eligible for enhanced hazardous duty benefits. Prohibits anyone subject to the judicial mandatory retirement age of 73 from serving as a justice, judge, or substitute judge. 40

41 VRS-Related Bills Bill Number 41 HJ 96 HJ 103 SB 248 SB 321 SB 498 SB 691 Directs JLARC to study the expansion of hazardous duty benefits for members of the Virginia Law Officers Retirement System. Requests VRS to conduct a feasibility study relating to a state-run retirement savings plan for private-sector employees who do not have access to an employer-sponsored retirement plan. Makes various technical amendments in Title 51.1 relating to VRSadministered benefits (mirrors HB 846). Bill requested by the VRS Board of Trustees. Applies an annual cost-of-living adjustment to the Health Insurance Credit benefit of any state employee who retired with at least 30 years of creditable service (mirrors HB 863). Provides enhanced hazardous duty benefits, 50 percent of which is paid by the state, to certain public safety officers employed by a locality that has two or fewer such employees. Adds conservation officers of the Department of Conservation and Recreation to the list of those eligible for membership in the Virginia Law Officers Retirement System.

42 LODA-Related Bills Bill Number HB 107 HB 472 HB 1245 SB 56 Includes correctional officers in the list of public safety officers covered by a presumption that hypertension and heart disease occurred in the line of duty. Adds colon, brain, and testicular cancer to the list of cancers that are presumed to have occurred in the line of duty; removes the requirement that an employee have come in contact with a toxic substance in the line of duty in order for the presumption to apply (mirrors HB 1245). Adds colon, brain, and testicular cancer to the list of cancers that are presumed to have occurred in the line of duty; removes the requirement that an employee have come in contact with a toxic substance in the line of duty in order for the presumption to apply (mirrors HB 472). Adds children born or adopted after an employee s date of death or disability to the list of dependents who are eligible for LODA health benefits, but only if such coverage does not result in an increase to the premium paid by the employer. 42

43 LODA-Related Bills Bill Number SB 352 SB 468 SB 494 SB 642 Adds lymphoma, non-hodgkin lymphoma, colon, brain, and testicular cancers to the list of cancers that are presumed to have occurred in the line of duty; requires that an employee have completed five years of continuous service (instead of the current 12) in order for the presumption to apply. Adds Department of Military Affairs employees to the list of those covered by the Line of Duty Act when injured or killed in relation to a Governor-declared major disaster or emergency. Permits the eligible spouse of an employee who dies in the line of duty to remain eligible for LODA health coverage upon remarriage if the employee s death occurred before July 1, 2017 and the eligible spouse pays for the coverage. Adds colon cancer to the list of cancers that are presumed to have occurred in the line of duty; removes the requirement that an employee have come in contact with a toxic substance in the line of duty in order for the presumption to apply (mirrors HB 1245). 43

VRS Overview Presented to: Virginia Association of School Superintendents and Virginia School Business Officials

VRS Overview Presented to: Virginia Association of School Superintendents and Virginia School Business Officials Patricia S. Bishop, VRS Director Barry C. Faison, VRS Chief Financial Officer January 11,