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1 City e>f V"irgi~ia. B each VBgov.com OFFICE OF THE CITY MANAGER (757) FAX MUNICIPAL CENTER BUILDING 1, ROOM COURTHOUSE DRIVE VIRGINIA BEACH, VA The Honorable Louis R. Jones, Mayor Members of City Council Subject: 2018 Funded Status for Virginia Beach Pensions Increase for City and Schools Dear Mayor and Council Members: As noted in the attached memo from Patricia Phillips, the Virginia Retirement System (VRS) recently provided pension information through FY Overall, the City's pension status remains strong. The City's increasing pension funded status, as well as its policy of fully funding its payments to VRS, means that the City is financially responsible and well managed. These are some of the factors that enable the City to be rated Triple-A by the three major rating agencies. The City is a separate pension plan within VRS, while the Schools are part of the Statewide Teacher Pool within VRS. The financial assets used to pay VRS benefits are pooled in the VRS trust fund, which holds $78.6 billion in assets Ranked by value of assets, VRS is the nation's 20th largest public or private pension fund. Funding public pension plans is an important issue throughout the country and there are many complexities and perhaps misconceptions about funding and accounting for pensions. The City began reporting its Net Pension Liability (NPL) in its financial statements in FY 2015, as required by the Governmental Accounting Standards Board (GASB). It is important to note that a NPL is not a formal debt obligation, but rather a calculation that assists employers in evaluating its pension system and setting funding rates that will eventually fully fund the pension system. A NPL represents the difference between the value in today's dollars (present value) of benefits already earned (but not necessarily due) by employees (total pension liability) and resources accumulated and held in trust to pay those benefits. NPL is determined through actuarial valuations using estimates and assumptions for a variety of factors including but not limited to: number of employees, the number of years they will work, future salary increases, years of retirement and longevity, percentage of employees married, calculated rate of return on investments ( discount rate), fees, and market results. The estimated value of the asset and the estimated value of the liability can change significantly from year to year as assumptions are changed and if the market rate of return is higher or lower than the estimated discount rate. The NPL in and of

2 The Honorable Louis R. Jones, Mayor and Members of City Council Subject: 2018 Funded Status for Virginia Beach Pensions Increase for City and Schools Page 2 of3 itself reflects the calculations and estimates of a future obligation. It does not mean that all the funds must be on deposit today. For example, there is no need for parents to fully fund the college costs of their kindergartener today, but rather have a solid plan in place to accumulate the resources for future college costs. The Virginia Retirement System (YRS) takes a conservative approach to estimates and assumptions and several times since the early 2000's has lowered the assumed investment return rate and increased retiree longevity assumptions. Lower investment rate assumptions increases the actuarially determined contribution required and produce a higher NPL and a lower funded ratio. YRS commissions the preparation of two reports of all pension plans which provide different methods and results: o The actuarial valuation is the industry standard and the means by which employer contribution rates needed to fund the pension plans are traditionally determined (funding approach). The actuarial valuation method uses a 5-year smoothing of actual returns so that spikes in rates and liabilities are avoided, which is very useful for rate setting purposes. o The accounting approach (GASB 68) uses the market value of assets (rather than the smoothed value of assets from the actuarial valuation) to determine the NPL. Since it only considers performance in one fiscal year, the market value of assets makes the NPL more volatile than the actuarial valuation numbers. The following information is provided regarding the City and School's GASB 68 calculations for 2018: Combined City and Schools Net Pension Liability (NPL) decreased $162.4 million from the prior year. The Total Market Value of Assets (TMV) in YRS is estimated at $3.5 billion with a Total Liability estimated at $4.5 billion, resulting in a NPL estimated at $989.4 million. Only the NPL is recorded on the financial statements. Funded Level: The City's pension funded level is 82% and the Schools are 75%, with a combined funded level of 78%, a strong level. The median weighted funded ratio aggregated for state and local government pensions across the U.S. in FY 2017 was 72%. City calculations: o NPL decreased $60.9 million, from $411.1 million to $350.2 million. o TMV is $1.6 billion; the Total Liability is $1.9 billion, resulting in a NPL of $350.2 million. Schools calculations: o NPL decreased $101.6 million from $740.8 million to $639.2 million. o TMV is estimated at $1.9 billion and the Total Liability is $2.5 billion, with an NPL of $639.2 million.

3 The Honorable Louis R. Jones, Mayor and Members of City Council Subject: 2018 Funded Status for Virginia Beach Pensions Increase for City and Schools Page 3 of3 Contributions: The City and Schools combined contributed $111.7 million in FY 2018 to cover pension costs, or about 6% of the City's budget. Over one-half of the $ million paid in FY 2018 for VRS pension costs for City and School employees is for the amortization of the NPL. While other cities have recently been identified as having pension issues, for example Detroit and Dallas and Fairfax County, their biggest issues are the ability to fully fund their annual contribution rate and the design of their benefit package. Detroit is 67.7% funded, Dallas 49.23% and Fairfax County's (non VRS) pension plan is 79% funded. In FY 2016, the Fairfax County Board of Supervisors adopted a formal funding plan that committed to fully fund the contribution rate and approved benefit enhancements such as cost of living increases. Pension plans engage the services of actuaries to calculate contributions that employers need to make each year to ensure sufficient resources will accumulate over time to pay promised benefits. The Government Finance Officers Association (GFOA) advises that as long as a city intends to make contributions based on a reasonable actuarial valuation and it is feasible for the government to continue to make these contributions, then a net pension liability is no cause for alarm. GFOA also advises that the funded ratio, not only as of today, but the speed and direction of the funded status is also important in evaluating the significance of the employer's NPL. The City has consistently increased its funded level. The City's long history and commitment of funding the actuarially determined contribution rate and the General Assembly's commitment to now also fund the required contribution rate (teachers) should result in the elimination of our legacy NPL in 25 years. Respectfully, David L. ansen City Manager Attachment cc: Patricia A. Phillips, Director of Finance David A. Bradley, Director of Budget & Management Services Alice M. Kelly, Controller Farrell Hanzaker, Schools CFO

4 C_ity o f '-Tirgirria.. B e a.c h VBgov.com FINANCE DEPARTMENT FAX (757) MUNICIPAL CENTER BUILD1NG# COURTHOUSE DRIVE VIRGINIA BEACH, VA DATE: INTER-OFFICE MEMORANDUM TO: FROM: David L. Hansen, City Manager Patricia A. Phillips, Director of Finance SUBJECT: Update on Pension Liabilities Calculations--both-GASB 68 and Actuarial - FY 2018 The annual report from the Virginia Retirement System (VRS) regarding the City of Virginia Beach's Governmental Accounting Standards Board (GASB) 68 Net Pension Liability (NPL) calculations for FY 2018 (measured as of June 30, 2017) has been received to include in the FY 2018 annual audited financial statements. The actuarial calculations have also been received. The City/School's GASB 68 calculations for the combined NPL decreased $162.4 million from FY 2017 due to a variety of factors: a high investment return of 12.1 %, and changes in other assumptions. The GASB 68 calculations indicate the City's pension plan is 82% funded; the Schools is 75% funded, with a combined funding level of 78%, which is a strong funding level. The City's funding status has been steadily increasing due to the city's commitment to fully fund the actuarially determined contributions. The Virginia Retirement System (VRS) takes a conservative approach to estimates and assumptions and several times since the early 2000's has lowered the investment rate return assumption and increased longevity rate assumptions. These conservative assumptions produce a higher NPL. Instead of focusing on the NPL a more critical determinate of financial viability is the funding of the annual actuarially determined required contribution which includes the normal cost of retirement plus funding a portion of the net pension liability. Paying a portion of the NPL annually for a closed period (typically an employee's life work cycle) is recognized as a financially astute method to fund a pension liability as it recognizes the need to reduce the liability but minimizes the impact to the annual budget. The Government Finance Officers Association (GFOA), credit rating agencies and other financial authorities advise that reviewing funding status history, contributions made and the ability and the commitment to continue to fund the actuarially determined contributions are key factors in determining the financial condition of an entity. The City has a strong history of fully funding the recommended actuarially determined contribution and is experiencing a steady increase in the funded status of its pension plan.

5 Page 2 of 8 Funding public pension plans is an important issue throughout the country and there are many complexities and perhaps misconceptions about funding and accounting for pensions. The City and Schools combined contribute $111.7 million a year to cover pension costs or about 6% of the City s budget. Employees also contributed 5% of their salary ($38.02 million in FY 2018 for City and School employees combined) to fund the plan. In order to provide clarification and content for the pension numbers provided we are providing the following information: o Virginia Retirement System Background o Pension Measurement different methods o Funding of pension systems and employer contribution rates o Financial statement focus Long term liabilities FY 2018 Pension Liability Results Impacts of estimates and assumptions--volatility of net pension liability o Funded status and Interpreting impact of liabilities on financial stability o Comparison to Other Localities Detroit, Dallas and County of Fairfax Virginia Retirement System (VRS) Background VRS administers pension trust plans for most of Virginia s public sector employees. VRS is governed by the General Assembly and must comply with federal and tax trust laws. Participating local governments are required to follow all plan provisions and VRS holds the pension assets in the trust funds. The Board of Trustees of the Virginia Retirement System is established as an independent board in state government and no elected or appointed official shall serve on the Board of Trustees. Both the City and Schools employees are members of VRS. The City is rated separately from other participating employers, and the employer contribution rates are set accordingly. The Schools professional employees (teachers) are part of the State teachers pool for VRS. In the past the General Assembly did not fully fund the actuarially determined contribution which contributed to a higher unfunded liability for this group. Pension Measurement different methods Pension balances are calculated using professional estimates and assumptions and different actuary/ accounting methods are used for different purposes. VRS prepares two reports for all pension plans with different methods and results; as noted in the attachment, the actuarial method in 2018 produces a higher NPL than the GASB 68 method. In 2017, the opposite was true. Over time, the NPL using the actuarial method is decreasing, while the GASB 68 number will be very volatile, depending on the interest rate actually earned in the year under review: The actuarial valuation report which is the basis for rate setting/funding. This method recognizes excess or shortfalls of investment returns over a five year period to dampen year to year fluctuations of the investment return. This helps keep a more consistent contribution rate which reduces the volatility for budgeting purposes. The accounting regulations (GASB 68) report, which has been in effect since FY2015, uses the market value of assets (rather than the five year smoothing value used in the funding approach) subject to wider fluctuations each year as market conditions change. (Chart 1)

6 Page 3 of 8 Bond Rating Credit rating agencies use their own proprietary analytics to calculate pension obligations to help determine the financial capabilities of a municipality to repay their debt. Funding of Pension Systems and Employer Contribution Rates VRS commissions an actuarial valuation of all pension plans at the end of each fiscal year which provides a summary of the funded status of the Plan and establishes a recommended rate of employer contribution. Rates are set every two years. Employees are required to pay a 5% contribution. The required employer contribution rate established by actuarial valuation includes four components: 1. Normal Cost, the annual cost of providing retirement benefits for services performed by current members 2. Amortization of the Unfunded Actuarial Accrued Liability (UAAL), 3. Administrative Expenses, and 4. Contributions to the Deferred Compensation Plan for Hybrid Members. The established contribution rate is paid to VRS monthly based on covered payroll, and is fully funded each budget year. Per the funding arrangement adopted by the VRS Board of Trustees, the legacy UAAL (as based on the 2013 Original Unfunded Liability) is being amortized over a closed 30 year period. This closed period is reduced each year and had 26 years remaining at June 30, Each future annual change in the UAAL subsequent to the June 30, 2013 valuation will be amortized over a closed 20 year period. The rates established by VRS are sufficient to fund the normal cost for all local government employers and to finance the UAAL. In fact, of the $111.7 million the City paid to VRS in FY2018, over half represented the amortization of the unfunded liability. Over the last three fiscal years, the UAAL has been decreasing and, accordingly, the Plan funding percentage is increasing.

7 Page 4 of 8 The City is paying the current recommended employer rate which is 13.88%, and for the Schools the Non-Teachers employer rate is 7.02% and the rate for the Teachers is 16.32%. For FY 2019 and FY2020 the recommended employer rate for the City will be 14.54% and for Schools will be 15.68%. Table 1 Employer Recommended Contribution Rates for FY 2018 (Excludes employee rate of 5%) ER Rate City % of Total Non-Teachers % of ER Rate Total Schools Teachers % of ER Rate Total Normal Cost Rate 6.64% 47.84% 4.39% 62.5% 5.61% 34.4% UAAL Amortization Rate 6.87% 49.50% 2.22% 31.6% 9.55% 58.5% Administrative Expense 0.30% 2.16% 0.29% 4.1% 0.25% 1.5% Amortization of Deferred Contributions % 5.1% DC Match - Hybrid Members 0.07% 0.50% 0.12% 1.7% 0.07% 0.4% Total Employer Rates (ER) 13.88% % 7.02% 100% 16.32% 100% (Employee Rate is 5%) Financial Statement Focus As required GASB, the City s basic financial statements include government-wide statements and fund financial statements to meet different but significant objectives. The City s fund financial statements have a near-term focus on fiscal accountability. Fund statements are important to demonstrate compliance with legal and contractual limitations on spending and to provide information relevant to ensure budgetary perspective. Government-wide statements focus on long-term economic resources and operational accountability and include all capital assets and long term liabilities which are not found on the fund financial statements. Long Term Liabilities There are three significant long-term liabilities currently recorded on the government-wide financial statements- long term debt, compensated absences and NPL. In FY 2018 Other Post-Employment Benefits (OPEB) and in FY 2021 long term lease valuations will also be recorded as liabilities on the financial statements. It is important to note that although these liabilities have not always been recorded on government-wide statements, on the fund balance statements the city has been budgeting and paying the amounts needed to meet its legal obligations and to fully fund the liabilities. The amounts of the long term liabilities are determined using different methods resulting in different levels of precision in the amount of the future liability as follows: Bond Debt is a legal obligation with very specific interest and repayment requirements and the amount is precise. (The City does not currently have any outstanding variable debt which would require estimates for long-term interest liability.)

8 Page 5 of 8 Compensated absences are calculated based on end of the year leave balances for employees multiplied by their current salary amounts so this number is not a precise number but an estimate. Net Pension Liability is determined through actuary valuations using estimates and assumptions for a variety of factors including: number of employees and years they will work, future salary increases, years of retirement and longevity, percentage of employees married, calculated rate of return on investments (discount rate), fees for the plan and market results. The estimated value of the asset and the estimated value of the liability can change significantly as assumptions are changed and if the market rate of return is higher or lower than the estimated discount rate. This calculation does not represent a formal debt. FY 2018 Pension Liability Results In August the City of Virginia Beach received the results of the latest Virginia Retirement System (VRS) GASB 68 actuary pension valuation. The NPL determined from this valuation will be recorded as part of the City s FY 2018 financial statements in the long-term liabilities section of the Statement of Net Position. Combined City and Schools: the Total Market Value of Assets (TMV) in VRS is estimated at $3.5 billion with a Total Liability estimated at $4.5 billion, resulting in a NPL estimated at $989.4 million, a decrease of $162.4 million. Only the NPL is recorded on the financial statements. City calculations: o NPL decreased $60.9 million, from $411.1 million to $350.2 million. o TMV is $1.6 billion; the Total Liability is $1.9 billion, resulting in a NPL of $350.2 million. Schools calculations: o NPL decreased $101.6 million from $740.8 million to $639.2 million. o TMV is estimated at $1.9 billion and the Total Liability is $2.5 billion, with an NPL of $639.2 million. Only the NPL is recorded on the financial statements and not the total market value of the assets in the plan or the total liability. The Attachment shows the funding level, pension cost, history of the NPL using both methods, and other relevant information for both the City and Schools. Impacts of Estimates and Assumptions Volatility of Net Pension Liability In order to determine a calculated liability, estimates and assumptions regarding investment returns and demographic information are made. Pre-GASB 68, twice in the early 2000 s (2005 and 2009) the VRS Board decreased its discount rate (the assumed rate of returns on the trust investments), resulting in a significant increase in the Unfunded Actuarial Accrued Liability especially since the General Assembly used the old, higher discount rate to fund the

9 Page 6 of 8 contributions for teachers and state employees (Chart 2). While the State s proportional share of the funding is about 36-40%, based on appropriation and school aid formulas, 100 percent of the unfunded liability falls solely on the school boards/local government and is recorded as part of the net pension liability on local government financial statements. To illustrate the impact of discount rate changes, GASB 68 requires that the City provide a sensitivity analysis to changes in the discount rate. A 1% increase in the current discount rate would reduce the NPL for FY 2018 by 48%. Conversely a 1% decrease in the amount assumed to be earned by the plan increases the liability by 58%. It is also important to note that return rates (discount rates) are highly volatile and past performance may not be a good indicator of future performance. Below in Table 3 are the historical returns for VRS system as of June 30, For FY 2018, the one year return was 7.5% which will cause the FY 2019 NPL to increase. Table 3 VRS Returns June 30, year 3 yrs 5 yrs 10 yrs 15 yrs 20 yrs 25 yrs Total VRS 7.5% 7.1% 8.3% 6.1% 7.8% 6.5% 8.2% Funded status and Interpreting impact of liabilities on financial stability The methodology used in the GASB 68 calculation reflects the actual results for the most recent year (FY 2017 in this case), and thus the GASB 68 (accounting) unfunded pension liability will exhibit volatility from year to year. Although it is reasonable to expect this volatility, it is important to remember that our unfunded pension liability is being amortized over a closed period with 25 years remaining at June 30, 2018; this amortization is included as part of our employer paid pension cost each year, and represents over 50 percent of the City s annual

10 Page 7 of 8 payments. The chart below shows the total pension costs the City incurs broken down by the Normal Cost which is the annual cost needed to fund retirement benefits and the Amortization of the Unfunded Liability. Comparison to Other Localities Detroit, Dallas and County of Fairfax The City of Virginia Beach and the Schools pension funding is 78%, a higher level than the National Average (71.6%) for state and local pensions per information published by the Public Plan database. In addition to being higher than average, VRS has been using a more conservative investment return of 7% since FY As mentioned above, the higher the investments return assumption, the higher the calculated funded ratio. Chart 4 compares the national average funded ratio of all state and local public pension plans to the funded ratio of Virginia Beach. Certain cities have recently been identified as having pension issues. The City of Detroit pension funding status as of FY 2017 was 67.7% which is lower than the National average but the bigger issue was their ability to fully fund their annual contribution rate and the city s bankrupt status. Part of their long-term strategy to be able to fund their contribution rate was to redesign the retirement benefits. Similarly, the City of Dallas, Texas has a funding ratio of 49.23% and their high annual contribution rate was unsustainable. Dallas had a Deferred Retirement Option Program (DROP) and significant retirement benefits which created a large pension liability. They, like Detroit, had to redesign the benefit package to help reduce annual payments. The Fairfax County retirement system (not in VRS) is 79% funded and has a DROP program. In FY 2016, the Fairfax County Board of Supervisors adopted a formal funding plan that committed to fully fund the contribution rate and approved benefit enhancements such as cost of living increases.

11 Page 8 of 8 Conclusion Pension plans engage the services of actuaries to calculate contributions that employers need to make each year to ensure sufficient resources will accumulate in time to pay promised benefits. GFOA advises that as long as a city intends to make contributions based on a reasonable actuarial valuation and it is feasible for the government to continue to make these contributions then a large net pension liability is no cause for alarm. GFOA also advises that the funded ratio not only as of today but the speed and direction of the funding status is also important in evaluating the significance of the employer s net pension liability. The City s long history of funding the actuarially determined contribution rates and the General Assembly s commitment to fund the required contribution rate (teachers) should result in the elimination of our legacy unfunded liability in 25 years or by FY Over one-half of the $111.7 million paid in FY 2018 for VRS pension costs for City and School employees is for the amortization of the unfunded pension liabilities. PAP/lb Attachment (1)

12 ATTACHMENT CITY OF VIRGINIA BEACH PENSION COST and UNFUNDED (FUNDED) PENSION FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FUNDING STATUS City % Funded Actuary method 102% 102% 97% 91% 86% 77% 79% 83% 84% 80% 73% 72% 69% 70% 75% 79% 79% 81% % Funded GASB Method NA NA NA NA NA NA NA NA NA NA NA NA NA NA 81% 81% 78% 82% School % Funded Actuary method 105% 101% 94% 88% 76% 75% 77% 80% 77% 69% 67% 65% 66% 67% 67% 71% 72% 74% % Funded GASB Method NA NA NA NA NA NA NA NA NA NA NA NA NA NA 73% 73% 70% 75% City/School Combined % Funded Actuary method 103% 107% 100% 94% 88% 78% 77% 79% 80% 77% 69% 67% 63% 66% 71% 71% 75% 77% % Funded GASB Method NA NA NA NA NA NA NA NA NA NA NA NA NA NA 72% 72% 73% 78% Actuarial Funded Ratio for State &Local Pension Plans 5 102% 96% 89% 87% 85% 85% 86% 84% 78% 76% 74% 72% 72% 73% 73% 72% 72% N/A CITY Employer Paid Pension Cost $ 24,275,750 $ 24,809,687 $ 23,270,746 $ 24,489,406 $ 36,042,451 $ 38,095,906 $ 45,676,301 $ 49,270,686 $ 47,155,843 $ 46,752,410 $ 48,314,954 $ 49,174,585 $ 54,955,790 $ 53,239,952 $ 53,444,533 $ 52,111,492 $ 43,919,386 $ 43,305,500 Unfunded (Funded) Pension Liability: Actuarial Valuation 2 (12,270,103) (13,781,862) 22,998,154 78,057, ,088, ,799, ,008, ,128, ,220, ,115, ,266, ,493, ,436, ,340, ,386, ,821, ,729, ,781,581 GASB 68 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 333,771, ,372, ,098, ,237,692 Amortization of Unfunded Liability ,309,474 5,295,649 14,519,241 14,737,110 17,354,584 17,011,723 18,330,599 19,468,446 19,271,198 21,283,117 25,682,380 24,049,601 23,569,602 24,339,216 21,767,626 19,872,807 Employer Contribution Rate 8.01% 7.50% 6.00% 6.00% 10.25% 10.32% 12.28% 12.72% 11.48% 11.48% 12.58% 12.58% 15.68% 15.68% 16.35% 16.35% 13.88% 13.88% Member Contribution Rate paid by City % 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 0.00% Total Percent Paid 13.01% 12.50% 11.00% 11.00% 15.25% 15.32% 17.28% 17.72% 16.48% 16.48% 17.58% 17.58% 19.68% 18.68% 18.35% 17.35% 13.88% 13.88% SCHOOLS Employer Paid Pension Cost $ 38,130,469 $ 26,504,093 $ 29,600,649 $ 31,435,862 $ 41,528,747 $ 45,818,846 $ 59,259,462 $ 64,819,165 $ 59,971,025 $ 48,834,904 $ 38,851,684 $ 47,372,479 $ 64,684,867 $ 60,157,821 $ 68,115,013 $ 62,618,103 $ 58,330,813 $ 68,372,259 Unfunded (Funded) Pension Liability: Actuarial Valuation 2 (50,888,102) (8,069,124) 61,125, ,069, ,050, ,454, ,211, ,678, ,255, ,972, ,364, ,165, ,803, ,069, ,057, ,177, ,716, ,148,964 GASB 68 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 634,759, ,262, ,779, ,194,541 Amortization of Unfunded Liability ,801,083 17,230,791 24,156,628 26,169,933 33,578,643 36,164,166 34,325,471 28,369,591 22,378,856 27,703,105 38,623,668 34,876,003 38,795,060 35,447,824 35,185,947 39,672,077 Teachers: Employer Contribution Rate 7.54% 4.24% 3.77% 3.77% 6.03% 6.62% 9.20% 10.30% 8.81% 8.81% % 6.33% 11.66% 11.66% 14.50% 14.06% 14.66% 16.32% Member Contribution Rate paid by City 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 0.00% Total Percent Paid 12.54% 9.24% 8.77% 8.77% 11.03% 11.62% 14.20% 15.30% 13.81% 13.81% 8.93% 11.33% 15.66% 14.66% 16.50% 15.06% 14.66% 16.32% Non Professional: Employer Contribution Rate 5.25% 5.00% 3.00% 3.00% 4.00% 4.00% 12.52% 7.52% 6.64% 6.64% 6.26% 6.26% 9.11% 9.11% 9.11% 9.11% 7.02% 6.79% Member Contribution Rate paid by City % 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 4.00% 3.00% 2.00% 1.00% Total Percent Paid 10.25% 10.00% 8.00% 8.00% 9.00% 9.00% 17.52% 12.52% 11.64% 11.64% 11.26% 11.26% 13.11% 12.11% 11.11% 10.11% 0.00% 7.02% 0.00% 6.79% TOTAL CITY SCHOOL COMBINED Employer Paid Pension Cost $ 62,406,219 $ 51,313,780 $ 52,871,395 $ 55,925,268 $ 77,571,198 $ 83,914,752 $ 104,935,763 $ 114,089,851 $ 107,126,868 $ 95,587,314 $ 87,166,638 $ 96,547,064 $ 119,640,657 $ 113,397,773 $ 121,559,546 $ 114,729,595 $ 102,250,199 $ 111,677,759 Amortization of Unfunded Liability ,110,557 22,526,439 38,675,869 40,907,043 50,933,228 53,175,889 52,656,070 47,838,037 41,650,054 48,986,222 64,306,048 58,925,604 62,364,662 59,787,040 56,953,572 59,544,884 % Amortization of Unfunded Liability of Total Cost 0.00% 0.00% 36.15% 40.28% 49.86% 48.75% 48.54% 46.61% 49.15% 50.05% 47.78% 50.74% 53.75% 51.96% 51.30% 52.11% 55.70% 53.32% VRS RETURNS FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 Actuarial Assumed Investment Rate 8.00% 8.00% 8.00% 8.00% 8.00% 7.50% 7.50% 7.50% 7.50% 7.50% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% Achieved Net Return on Investments -7.40% -7.30% 2.50% 17.90% 12.00% 12.40% 20.40% -4.40% % 14.10% 19.10% 1.40% 11.80% 15.70% 4.70% 1.90% 12.00% 7.50% Notes: 1. In a 5-year phase in beginning July 1, 2012, Employees are required to contribute 5% towards their retirement; previously, this was assumed by the employer. ` 2. Actuarial Valuation is determined as of June 30 of the prior year. Teachers is estimated based on % contribution 3. The unfunded liability is amortized and is included in the annual employer paid pension cost. Prior to FY13 the amortization period was open; in FY 13 a closed period was begun, with 25 years remaining. 4. The General Assembly changed the contribution rate from 13.81% to 0% for the last quarter of FY The Source for the National data average is Public Plans Database and PENDAT and uses a weighted average - The median discount rate was 8% from and 7.75% in 2012.