VRS Overview Presented to Virginia Association of School Business Officials

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1 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

2 Did You Know? How much does VRS pay out annually to retirees and beneficiaries? A. $100.5 million B. $500.4 million C. $1.4 billion D. $4.5 billion 2

3 Did You Know? How much does VRS pay out annually to retirees and beneficiaries? A. $100.4 million B. $500.4 million C. $1.4 billion D. $4.5 billion 3

4 VRS Overview

5 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 687,000 members, retirees and beneficiaries As of June 30,

6 VRS Total Membership Plan 1 Plan 2 Hybrid Total Teachers 82,403 34,375 29, ,090 Political Subdivisions 52,938 31,830 21, ,524 State Employees 43,075 17,706 16,836 77,617 State Police Officers Retirement System (SPORS) 1, ,877 Virginia Law Officers Retirement System (VaLORS) 4,045 4,628 8,673 Judicial Retirement System (JRS) Total Active Members 184,013 89,178 68, ,200 Total Active Members Retirees/ Beneficiaries Inactive/ Deferred Members VRS Total Population 341, , , ,494 As of June 30,

7 Economics of Pensions 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% 7

8 Benefit Comparison Actives: State Teachers Local Average Age Average Service Average Salary $51,461 $50,720 $42,859 Retirees: Avg. Retirement Avg. Retirement Avg. Retirement 38.6% 38.3% 33.5% Avg. Annual Benefit $21,205 $22,216 $15,365 Avg. Social Security Benefit at Age 62 $19,488 $18,600 $15,480 * Information obtained from the June 30, 2015, actuarial valuations. 8

9 Hybrid Retirement Plan

10 Hybrid Retirement Plan 68,198 active Hybrid Retirement Plan members as of July 1, 2017 Total combined balance in the Hybrid 401(a) Cash Match Plan and the Hybrid 457 Deferred Compensation Plan is $193 million Due to auto-escalation there are now 51,438 hybrid members making voluntary contributions, or 75.42% Of those, 14,004 hybrid members actively elected a voluntary contribution 10

11 Hybrid 457 Plan Voluntary Contributions Active members who have a voluntary contribution as of June 15, 2017 Active members with a voluntary contribution greater than 0.5% 21.6% 73.1% 26.9% 0.4% 0.7% 0.9% 1.1% 1.0% 1.1% Voluntary Contribution Percentages 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 11

12 Hybrid Retirement Plan Members by Employer Type 40,000 35,000 30,000 25,000 20,000 15,000 10,000 34, % 17.44% 61.88% Not Participating in Voluntary Voluntary Members - 1% and Above Voluntary Members - 0.5% 16,331 17, % 30.95% 19.64% 27.73% 5, % 45.83% 0 School Divisions Political Subdivisions State Agencies As of July 1,

13 Hybrid Retirement Plan Helping members plan for tomorrow, today. 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 Active Choice Provides messaging to members to encourage action 13

Introducing SmartStep! SmartStep helps members save more for retirement by allowing them to set annual increases to their voluntary contributions.

14 Introducing SmartStep! SmartStep helps members save more for retirement by allowing them to set annual increases to their voluntary contributions. SmartStep helps members reach the maximum contribution at their own pace. Once members choose SmartStep, they do not have to log in to increase the contribution each year. SmartStep does the work! The more members save, the more they receive in matching employer contributions, benefiting from compounding of interest over time. 14

15 Helping Members Plan for Tomorrow, Today!

16 Financial Wellness 16

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

17 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 17

18 Financial Wellness 18

19 VRS Financial Overview

20 Assets in Billions VRS Net Position $80 $70 $68.1 $68.1 $66.2 $74.4 $60 $58.3 $55.1 $54.6 $53.3 $58.4 $50 $40 $30 $20 $22.2 $26.9 $31.7 $35.7 $40.8 $40.0 $37.7 $34.4 $34.7 $44.1 $48.7 $42.6 $47.7 $10 $ Fiscal Year 20

21 % Return VRS Fiscal Year Returns FY 2017 return as of June 30, 2017, is 12.1% Series2 Investment Return Assumption Fiscal Year 21

22 Fund Performance Net of Fees as of June 30, 2017 VRS Return Benchmark 1-year 12.1% 11.8% 3-year 6.2% 5.7% 5-year 9.1% 8.5% 10-year 4.9% 4.5% 15-year 7.5% 6.9% 20-year 7.0% 6.4% 25-year 8.3% 7.9% Source: Bank of New York Mellon

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

23 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

24 Teacher Employer Contribution Rates FISCAL YEAR & 2020 Phase-In of VRS Board Certified Rates Agreed Upon in 2012 Legislative Session 79.69% 79.69% 89.84% 89.84% 100% Expected Employer Rates Based on Phase-In Schedule 14.50% 14.06% 14.66% 14.66% 15.79% Employer Rates Based on 2017 Virginia Acts of Assembly, Chapter % 14.06% 14.66% 16.32% TBD * Teacher contribution rate is increased to 100% of Board-certified rate in second year of biennium. Additional Notes: Above contribution rates are net of employee contributions. Teacher rates for FY 2016 decreased due to an additional contribution of $192.9 million that was applied to the deferred contribution balance in FY The subsequent rates for FY were also lowered to reflect the accelerated repayment. 24

25 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

26 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 26

27 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,

28 VRS OPEB Plans / June 30, 2016 NOL Group Life Insurance $1,749,542,000 Multi-employer cost-sharing plan Health Insurance Credit $2,247,862,000 State Single employer plan Teachers Multi-employer cost-sharing plan Localities Multi-employer agent plans State-Funded Local HIC Benefits (Special Funding Situation) Virginia Sickness and Disability Program ($166,940,000) State Single employer plan Virginia Local Disability Program $817,000 Teachers Multi-employer cost-sharing plan Localities Multi-employer cost-sharing plan Line of Duty Act $222,783,000 Multi-employer cost-sharing plan 28

29 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 29

30 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 30

31 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: o Selected state agencies o Teacher cost-sharing pool o Political subdivision plans OPEB: o GLI cost-sharing pool o HIC cost-sharing pool and locality plans o VSDP state single-employer plan o VLDP teacher and locality cost-sharing pools o LODA cost-sharing pool 31

32 Employer Resources

33 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 33

34 View the Financial Reporting Section View the Financial Reporting section under Employer tab: 34

35 View the Financial Reporting Section 35

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

36 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 36

37 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

38 Employer Resources Payroll Guide 38 EZLink Guides & Videos Voluntary Contributions Toolkit Handbook for Members ICMA-RC Employer Support: 1-VRS-DC-PLAN1 ( ), select option 3

39 Meetings, Seminars and One-on-One Counseling 39

40 40 Questions?

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,