Virginia Retirement System Update Virginia Association of School Business Officials Barry C. Faison, Chief Financial Officer October 3, 2014 Agenda • VRS Overview • Investments • Modernization & Pension Reform • GASB Changes 2 VRS Overview VRS Total Membership Plan 1 Plan 2 Hybrid Total 100,438 42,655 1,281 144,374 Political Subdivisions 66,081 35,246 3,487 104,814 State Employees 52,356 22,856 2,946 78,158 State Police Officers’ Retirement System (SPORS) 1,513 484 - 1,997 Virginia Law Officers’ Retirement System (VaLORS) 5,515 3,877 - 9,392 Judicial Retirement System (JRS) 313 69 - 382 226,216 105,187 7,714 339,117 Teachers Total Active Members Total Active Members Retirees/ Beneficiaries Inactive/ Deferred Members VRS Total Population 339,117 181,660 115,962 636,739 As of August 31, 2014 4 Active Members 160,000 140,000 Totals 120,000 100,000 80,000 60,000 40,000 20,000 0 Fiscal Year State 5 Teachers Localities As of June 30, 2014 Retirees 90,000 80,000 70,000 Totals 60,000 50,000 40,000 30,000 20,000 10,000 0 Fiscal Year State 6 Teachers Localities As of June 30, 2014 Benefit Comparison State Teachers Local Actives: Average Age 48.3 45.2 46.3 Average Service 12.8 11.9 11.1 $48,972 $48,994 $41,287 Avg. Age @ Retirement 63.0 61.8 62.1 Avg. Service @ Retirement 22.6 23.3 19.9 $53,203 $58,358 $44,240 38.4% 39.6% 34.7% Avg. Annual Benefit $20,441 $23,116 $15,367 Avg. Social Security Benefit at Age 62 $18,252 $17,640 $14,640 Average Salary Retirees: (in FY 2013) Avg. AFC @ Retirement Avg. Benefit @ Retirement Information above obtained from the June 30, 2013, Actuarial Valuation. 7 Funds Flow For the Fiscal Year Ended June 30, 2014 8 Beginning Balance – July 1, 2013 $58.4 Contributions $3.1 Net Investment Income $9.1 Total Additions $12.2 Total Deductions ($4.4) Net Additions $7.8 Ending Balance – June 30, 2014 $66.2 Cash Flow (contributions minus deductions) $(1.3) Net Fiduciary Position $70 $66.2 $58.3 Assets in Billions $60 $58.4 $55.1 $48.7 $50 $40 $53.3 $47.7 $44.1 $40.8 $54.6 $42.6 $40.0 $37.7 $35.7 $34.4 $34.7 $31.7 $26.9 $30 $22.2 $20 $10 $0 1996 1998 2000 2002 2004 2006 Fiscal Year 9 2008 2010 2012 2014 Estimated VRS Employer Contribution Rates General Assembly committed to phase-in contribution rates for the teacher and state plans to the VRS board-certified rates as follows: July 1, 2012 July 1, 2014 July 1, 2016 July 1, 2018 State 67.02% 78.02% 89.01% 100% Teachers 69.53% 79.69% 89.84% 100% Estimated Contribution Rates by Fiscal Year 2013-14 2015 & 2016 2017 & 2018 2019 & 2020 State 8.76% 12.33% 12.04% 11.96% Teachers 11.66% 14.50% 14.58% 15.00% Added cost to achieve the 2015/2016 contribution rate increases is approximately $315.0 million for the biennium in General Funds. Fiscal Year 2014 investment return was 15.7%. Above contribution rates are net of employee contributions. 10 Investments VRS Fiscal Year Returns 25.0 20.0 15.0 % Return 10.0 5.0 0.0 -5.0 -10.0 -15.0 Investment Return Assumption -20.0 Fiscal Year 12 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 -25.0 Fund Performance VRS Return (As of June 30, 2014) 13 1-year 15.7% 3-year 9.5% 5-year 12.3% 10-year 7.4% 15-year 6.1% 20-year 8.8% 25-year 8.7% VRS Investment Allocation as of June 30, 2014 (Dollar Amounts in Billions / Percent of Total Fund) 14 Funded Status: Teachers 120% New GASB Accounting Rules will compute funded status using Market Value of Assets effective 6/30/14 for Plan Reporting and 6/30/15 for Employer Reporting. 100% 80% 60% 40% 20% 0% Projected Funded Status using Market Value of Assets (New GASB Standard) Projected Funded Status using Actuarial Value of Assets (Funding Standard) Assumptions: • Fiscal Year 2014 investment return was 15.7%. • Other projected years’ investment returns assume 7.0% with 2.5% inflation rate. • Assets estimated at actuarial value of assets (five-year smoothing). 15 Modernization and Pension Reform Modernization to Date New Capability myVRS Navigator (Employer) 17 Outcome Measure • 99.8% availability for FYE 2014 • Over 97% of employers confirm by end of month due; no further processing required • New data/better data being collected Data Center (Henrico County, VA) • 100% availability Disaster Recovery Data Center (Raleigh, NC) • 100% availability Hardware Replacement • Approximately 300 virtual servers and nearly 200 terabytes of mass storage Cisco VOIP Phone System • 100% availability Imaging and Content Management System • 100% of workflow documents imaged within one day Security Management System • 99% reduction in false positive alerts • Automatically drop 200 – 600 suspicious connections monthly Phase 3 Changes • Replaced the participant record-keeping system • Redesigned member records • Added job names with associated benefit attributes • Captured unique employee benefit profiles • Replaced contribution reporting/payment processes • Direct access to member data for updates • “Snapshot” process to validate changes and reconcile data • Confirmation process tied to contribution payments • Electronic payments instead of checks/lockbox • Provided Employer Portal • Expanded access for employer to data at VRS 18 Pension Reform Changes • Implemented Hybrid Retirement Plan • Modified myVRS Navigator to account for defined contributions • Added interface with ICMA-RC for data exchange of Hybrid member account activity • Implemented process for apportioning member and employer contributions between DB and DC components • FY • • • 2015 Pension Reform Activity Developed a Plan Determination tool for employers Modify myVRS Navigator for VLDP Develop process for reporting and payment of employer contributions for LTD employees in VLDP or opt-out plans • Begin work on PPS modifications for Hybrid employees 19 Phase 4 Objectives • Eliminate legacy mainframe system (RIMS) • Eliminate need for staff to use two systems • Eliminate VITA mainframe charges • Achieve benefits inherent in myVRS Navigator • Implement online customer portal for members and retirees • New transactional self-service capabilities 20 Phase 4 Business Functions • • • • • • • • • • 21 Refunds Long-Term Care Benefit Calculations and Retirement Processing Health Insurance and Health Insurance Credit Disability Tracking Payroll and Tax Processing Benefit Account Maintenance Purchase of Prior Service (PPS) VLDP and VSDP Other (actuarial reports, locator services, death matches) Customer Portal Replaces all existing inquiry capabilities • Members: employment and salary history, open requests, annual statements, etc. • Retirees: summary of benefits payments, tax statements, life insurance reduction schedule, etc. Adds new transactional capabilities • Enhanced authentication and authorization • Simulate benefits • Request refund • Change VRS beneficiaries • Retire online 22 Approach • VRS-managed with continuous business owner engagement • “Replace” RIMS but position VRS and myVRS Navigator for future improvements • Assign the right staff and carefully selected vendors • NeoSpin Framework Upgrade – Rules engine proof of concept • Must be managed in concert with several other significant projects – Virginia is replacing the statewide accounting system (the Cardinal Project) • Work begins now for a 2016 implementation – VRS is currently competing the VSDP/VLDP third-party provider contract 23 Phase 4 – Release Plan Phase 4 Release Plan Release 1 November 2015 July 2015 • • • Release 2 Current State Analysis Self-Service Study Refunds • • Benefit Calculation Engine Member Portal 1 Release 3 September 2016 • • • Benefit Account Maintenance Retirements and Health Insurance Member Portal 2 Release 4 October 2017 • • • Payroll and Tax Processing Disability Tracking, LTC, VSDP and VLDP Retiree Portal Member Portal 1: Authentication, DB and DC Estimates, Online Refunds Member Portal 2: Online Retirements, VRS Beneficiary Changes Member Portal 3: Retiree Functionality 24 GASB Changes GASB Changes Working with VRS Actuary on required data for new Plan and employer presentations Working with APA on additional audit steps necessary to support Pension Liability calculations Working with employers and their auditors to meet their needs for member demographic data Working with VRS Actuary and employers to develop all information necessary for Local Government financials Target dates: June 30, 2014 for VRS financials June 30, 2015 for local government financials 26 Questions?