Virginia Government Finance Officers

Association

October 22, 2009

Barry C. Faison

Chief Financial Officer

2

Agenda

• VRS Overview

• Funded Status and Rate Setting

• What’s on the Horizon

VRS Overview

44

VRS Total Membership

Teachers 148,461

Political Subdivisions 105,404

State Employees 80,808

State Police Officers’ Retirement System (SPORS) 1,826

Judicial Retirement System (JRS) 416

Virginia Law Officers’ Retirement System (VaLORS) 10,014

Total Active Members 346,929

Retirees/Beneficiaries 141,746

Inactive/Deferred Members 107,551

VRS Overall Impact 596,226

As of June 30, 2009

55

Net Assets Available for Benefits

$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

$42.9$47.0

$0

$10

$20

$30

$40

$50

$60

As

se

ts in

billio

ns

1996 1998 2000 2002 2004 2006 2008 09\22\09*

* Estimate as of 9-21-09

666

VRS Fiscal Year Returns

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

% R

etu

rn

7

Investment Returns

• FY 2009 Return on VRS Trust Fund was negative 21.1%

• Actuarially assumed return was 7.50%

• Returns needed over various periods to “make up” the loss:

– One year: 46.5%

– Three years: 19.2%

– Five years: 14.4%

Rate Setting and

Funding Benefits

9

Funding VRS Benefits

• 68% of benefit costs funded by investment earnings

• 32% of benefit costs funded by employee/employer contributions

101010

Cash Flow Projection – 10 Years

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

FY2

01

0

FY20

11

FY20

12

FY20

13

FY20

14

FY20

15

FY20

16

FY20

17

FY20

18

FY20

19

Cash Flow Projection - 10 Years (in millions)

Net Cash Out Div. & Int. Distributions

11

Employer Contribution Rates

Current Funded Rates*

FY 2010

2007 Board Certified Rates**

2009 Board Certified Rates**

State Employee

6.26% 8.02% 8.46%

Teacher 8.81% 11.84% 12.91%

*Current funded rates are based on assumptions applied in the 2009 Appropriations Act (8% rate of return, 3%

inflation rate, and a 30-year amortization).

**Board certified rates are based on the following assumptions (7.5% rate of return, 2.5% inflation rate, and a 20

year amortization period).

Note: These employer rates do not include the 5% member contributions that are also paid by employers.

12

OPEB Contribution Rates

Current Funded Rates*

FY 2010

Board Certified Rates**

2009 Board Certified Rates**

Group Life 0.79% 0.89% 1.11%

HIC - State Employee

1.00% 1.22% 1.06%

HIC - Teacher 1.04% 1.12% 1.08%

*Current funded rates are based on assumptions applied in the 2009 Appropriations Act (8% rate of return, 3%

inflation rate, and a 30-year amortization).

**Board certified rates are based on the following assumptions (7.5% rate of return, 2.5% inflation rate, and a 20

year amortization period).

13

Governor’s Budget

Reduction Plan

• Reduce state and teacher employer contributions to VRS April – June of 2010.– Reduction will not affect benefit provisions or

the accumulation of contributions in member accounts

– The state and other employers will pay the 5% member contributions that are picked up and paid by employers

• Suspend contributions for OPEB programs for April – June of 2010, except for local government health insurance credit.

Policy

Alternatives

15

Plan Design Changes Identified

by PWC & JLARCApplicable Savings/Cost Avoidance

Benefit Change Current

Members

Non-

vested

members

New

Hires

Current

Retirees

Immediate Long-term

Employee-paid Member

Contribution (2%)*

√ √ √ √

Increase retirement age 60** √ √ √

Reduce COLA for new

retirees***

√ √ √ √

Combination Plan √ √

Cash Balance Plan √ √

Defined Contribution Plan √ √

*PWC & JLARC assumed that the contributions would be phased in over a four-year period.

**PWC and JLARC did not apply retirement age design change to SPORS and VALORS.

***JLARC & PWC suggested that the General Assembly could consider exempting active employees within several years of retirement

eligibility from this change. Such an exemption could help limit the extent to which employees in this group may have to alter their retirement plans.

This exemption could also help avoid a sudden increase in employee retirement—and therefore loss of experienced employees—just prior to the

effective date.

Thank you!