TO: VACo Finance Steering Committee
FROM: Dean Lynch, Deputy Executive Director and Erik Johnston, Director of Government Affairs
SUBJECT: Key Points from VRS Annual Update to Joint Legislative Audit and Review Commission (JLARC)
DATE: July 16
Copy: County Administrators, County Liaisons and VACo Staff
The leadership of the Virginia Retirement System (VRS) provided their annual status report to the Joint Legislative Audit and Review Commission (JLARC) on July 13. Below are bullet points that summarize some of the key information for VACo members. The full report contains additional information about expected employer contribution rates through 2024, unfunded liability updates and other details and is available at http://jlarc.virginia.gov/pdfs/oversight/2015/VRS_annual_July_2015.pdf.
Investment earnings – VRS investment earnings ended the fiscal year on June 30 with an estimated investment return of 4.6 percent, below the 7 percent assumed annual rate of return. While this is not good news for the funded status, the fund has met the 7 percent return over the past 20 years and last year’s return of 15.7 percent will continue to be recognized in employer contribution rates over the next four years.
Positive impact on contribution rates for teacher plan– The contribution rate for the teacher plan decreased from 14.50 percent to 14.06 percent, effective July 1, 2015 as a result of an accelerated state payment of approximately $193 million against the 10-year outstanding deferral of contribution payments.
Rate setting for the Biennium – This is a rate setting year for VRS plans. The Board Certified teacher and local plan rates will be calculated in October and November respectively. The estimated teacher employer contribution rate for the next biennium (2017 & 2018) is 14.76 percent (this rate would have been 15.22 percent without the accelerated state payment). The estimated contribution rate for 2019 & 2020 is 15.68 percent which will complete phase-in of contribution rates to 100% of the recommendation of the VRS actuary.
Hybrid update – JLARC members expressed concern that only 8 percent of state and local hybrid plan employees are making voluntary contributions. This figure is up from only 4 percent of employees last year. VRS boosted employee education on the importance of making voluntary contributions in order to receive employee matching funds, but most hybrid employees are young and have lower compensation rates, making it difficult to make voluntary contributions.
Key points made to the Governor and General Assembly by VRS – They are gratified that the Governor and General Assembly are committed to funding contribution rates, including:
-Acceleration of contribution rates to the state plans to 90 percent and one year ahead of schedule
-Infusion of $192.9 million to the VRS Teacher Plan
-Sticking with the funding plan has been viewed positively by the bond-rating agencies
-Long-range prognosis for the health of the plan is positive if the Governor and General Assembly continue to adhere to funding plan.