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Virginia Retirement System Overview
Presented to:House Appropriations Compensation and Retirement Subcommittee
Presenter: Patricia S. BishopDirector of the Virginia Retirement System
Date: January 18, 2018
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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.
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Key Messages
Governor and General Assembly accelerated:
Statutory commitment to fund 100% of actuarially determined contributions
Repayment of deferred contributions from 2010-2012 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.
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As of December 31, 2017
Plan 1 Plan 2 Hybrid Total
Teachers 80,576 34,148 37,430 152,154
Political Subdivisions 50,959 31,688 25,132 107,779
State Employees 41,332 17,104 18,940 77,376
State Police Officers’ Retirement System (SPORS) 1,256 635 ‒ 1,891
Virginia Law Officers’ Retirement System (VaLORS) 3,776 4,913 ‒ 8,689
Judicial Retirement System (JRS) 262 49 113 424
Total Active Members 178,161 88,537 81,615 348,313
Total Active Members
Retirees/Beneficiaries
Inactive/Deferred Members
VRS TotalPopulation
348,313 204,554 148,505 701,372
VRS Total Membership
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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%
VRS Financial Overview
7
Source of Pension Funding
67%
33%
Source of Defined Benefit Plan Funding
Investment Returns Member and Employer Contributions
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VRS Net Position
$0
$10
$20
$30
$40
$50
$60
$70
$80
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
$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
$42.6
$47.7
$54.6$53.3
$58.4
$66.2
$68.1 $68.1
$75.1
Fiscal Year
Asse
ts i
n B
illi
on
s
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VRS Fiscal Year Returns
Fiscal Year
-25.0
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.01
99
2
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93
19
94
19
95
19
96
19
97
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98
19
99
20
00
20
01
20
02
20
03
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07
20
08
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09
20
10
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20
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20
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20
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20
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% R
etu
rn
Investment Return Assumption
FY 2017 returnas of
June 30, 2017,is 12.1%
25-year return is 8.3% (net of
fees) as of June 30, 2017
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. 1 2014
• 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 10 – 15 years
Defined Benefit Defined Contribution
• Provides reduced benefit multiplier that serves as foundation for the future retirement benefit
• Increased age/service requirements
• Provides tax-deferred savings• Encourages employee savings
by including employer match
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Hybrid Retirement Plan Members by Employer Type
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
School Divisions Political Subdivisions State Agencies
Not Participating in Voluntary Voluntary Members - 0.5% Voluntary Members - 1% and Above
44,314
18,64319,296
17%
42%
42%
21%
37%
42%
29%
34%
37%
82,253Active Hybrid Retirement Plan members
as of January 1, 2018
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Hybrid 457 Plan – Voluntary Contribution Elections
65%
0%1%1%1%2%
2%
28%
35%
0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%
Active members who have a voluntary
contribution as of December 15, 2017
Active members with a voluntary contribution greater than 0.5%
Voluntary Contribution PercentagesNumbers are rounded and may not add up to 100%
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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
Funded Statusand
Contribution Rates
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Virginia Retirement System Unfunded Liabilities by Plan (Dollars in Billions)
Plan
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
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.
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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.
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VRS Retirement SystemEmployer Contribution Rates (% of Total Covered Payroll)
• Contribution rates are net of the 5% and 4% member contribution rates for Plan 1, Plan 2, and Hybrid plan respectively.
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%
System
Fiscal Years 2017/2018 Fiscal Years 2019/2020
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State Plan Projected Employer Contribution Rates Including Estimated Defined Contribution Hybrid Match
• 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.
Investment Return Sensitivity
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Teacher Plan Projected Employer Contribution Rates Including Estimated Defined Contribution Hybrid Match
Investment Return Sensitivity
• 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.
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OPEB Contribution Rates
• 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.
System Board Certified
General
Assembly
Approved Board Certified
Plan Funded
Status
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% 193.09%
Group Life 1.31% 1.31% 1.31% 46.62%
Fiscal Years 2019/2020Fiscal Years 2017/2018
GASB Update
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GASB 74 and GASB 75
In June 2015, GASB released two statements aimed at improving financial reporting by state and local governments of other post-employment 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
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VRS OPEB Liabilities by EmployerJune 30, 2017 Net OPEB Liability (NOL)
• State includes state employees regardless of pension plan.• State HIC also contains state-funded local positions which is considered "special funding situation" for GASB.
($Thousands)
Notes:
Plan State Teacher Political Subdivisions NOL as of 6/30/17
Group Life Insurance $456,366 $646,246 $402,228 $1,504,840
Virginia Sickness and Disability
Program ($205,321) $0 $0 ($205,321)
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
Health Insurance Credit
Virginia Local Disability
Program
$949,489 $1,268,611 $16,968 $2,235,068
$0 $594 $563 $1,157
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Comparison of Unfunded Liabilities
• Net pension liabilities and Net OPEB liabilities as of 6/30/16.
Line of Duty Act Update
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LODA Administrative Roles
A partnership of VRS and DHRM
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Website: www.valoda.org
Email: loda@varetire.org
Websites & Email Addresses
Website: www.dhrm.virginia.gov/loda
Email: loda@dhrm.virginia.gov
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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
Helping Members Plan for Tomorrow,
Today!
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Financial Wellness Features
CoursesLearn the fundamentals of money management
Student Loan SnapshotTrack all your student loans in one place in five minutes or less
BudgetPlan for expenses, set goals and keep
your finances on track
GamesPlay financial trivia and real-world simulator games
Scholarship SearchFind quality scholarships to help pay for school
Live WebinarsWatch video webinars with financial wellness experts
CalculatorsExperiment with mortgage, budget, auto, student loan calculators
Modernization
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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: 2014→
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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
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Modernization – Phase 4 Accomplishments
RefundsRefund Calculation Engine (7/2015)Refunds Disbursement (12/2015)
Online Refunds (3/2016)
Benefits Calculation Engine (4/2016)
New Member Portal with Security Enhancements (3/2016)
Online Retirement Planner (1/2017)
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Modernization – Phase 4 Accomplishments
Retiree Portal (6/2017) Online Financial Education (12/2017)
ORPHE/ORPPA Functionality (12/2017)
Online Purchase of Service Functionality (3/2017)
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Modernization – Phase 4 Releases Coming
Retirement Processing(10/2018)
DisbursementsAll remaining functionality
Online Retirement (Spring 2019)
New portal functionalityBeneficiary management
Online MBP
MiscellaneousVLDP
Actuarial Data Payment/Health Insurance Maintenance
(Spring 2019)
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Conclusion
2018 General Assembly Session
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VRS-Related Bills
Bill Number
HB 66 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.
HB 846 Makes various technical amendments in Title 51.1 relating to VRS-administered benefits (mirrors SB 248). Bill requested by the VRS Board of Trustees.
HB 863 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).
HB 1107 Requires VRS to invest the Medicaid Legacy Investment Fund alongside the VRS Trust Fund.
HB 1326 Adds E-911 dispatchers to the list of local employees who are eligible for enhanced hazardous duty benefits.
HB 1392 Prohibits anyone subject to the judicial mandatory retirement age of 73 from serving as a justice, judge, or substitute judge.
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VRS-Related Bills
Bill Number
HJ 96 Directs JLARC to study the expansion of hazardous duty benefits for members of the Virginia Law Officers’ Retirement System.
HJ 103 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.
SB 248 Makes various technical amendments in Title 51.1 relating to VRS-administered benefits (mirrors HB 846). Bill requested by the VRS Board of Trustees.
SB 321 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).
SB 498 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.
SB 691 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.
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LODA-Related Bills
Bill Number
HB 107 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.
HB 472 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).
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).
SB 56 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.
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LODA-Related Bills
Bill Number
SB 352 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.
SB 468 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.
SB 494 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.
SB 642 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).
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