On October 15 the VRS Board of Trustees used actuarial valuations to determine and certify the necessary employer contribution rates to fully fund the teacher and state pension plans over the next two years. The VRS board certified an employer contribution rate of 16.32 percent to fund the teacher pension plan at 100 percent. However, the estimated employer contribution rate for the teacher pension plan to be adopted by the General Assembly for FY 2017 and FY 2018 is 14.66 percent. This rate reflects the General Assembly plan of increasing the level of funding from 80 percent to nearly 90 percent of the VRS certified rate for the upcoming biennium. The plan calls for fully funding the certified rate at 100 percent in FY 2019 and FY 2020.
To put this in perspective for future budget impacts, localities shoulder around two-thirds of the cost for teacher retirement. The teacher rate adopted for FY 2015 and FY 2016 was set at 14.50 percent and thanks to a one time infusion of $193 million in state funding by the Governor and General Assembly during the 2015 session to pay down unfunded liabilities, dropped to 14.06 percent in FY 2016. The news today, means that counties can expect teacher contribution rates to increase by 0.60 percent to 14.66 percent for FY 2017 and FY 2018 if the General Assembly continues to keep with its pension reform commitments. The attached graphic shows the expected employer contribution rates through 2028. Teacher rates are expected to reach their peak in FY 2019 and FY 2020 at 15.79 percent and then will gradually decrease and level off in the 14.7 percent range in future years.
A good piece of news for the teacher plan is that the funded status went from 65.4 percent in 2014 to 69.2 percent in 2015 based on actuarial assets. This is good news for the overall health of the plan. The funded status based on Market Assets which typically fluctuates more widely year to year (but not this year) went from 71.2 percent to 71.3 percent. The unfunded liability for the teacher plan using the actuarial value of assets went from $14.3 billion in 2014 to $13.1 billion in FY 2015. However, the unfunded liability based on market value of assets, which again varies based on the market performance as of the date of the valuation, went from $11.9 billion to $12.2 billion.
It is important to note that the VRS actuary did advise the VRS Board that new financial reporting rules by the Governmental Accounting Standards Board (GASB) for Other Post-Employment Benefits (OPEB) have been issued. He noted that GASB 74 and GASB 75 will go into effect in 2018. These rules have similar requirements for OPEB plans that GASB 67 and 68 have for pension plans. VACo will monitor VRS efforts to determine how these rules will be implemented, especially any impacts on the financial statements of localities as unfunded liabilities are divided among multiple employers.
For additional information about the VRS board meetings this week see the attached report from the VRS Benefits and Actuarial Committee Meeting and the attached detail regarding VRS Board Certified Rates for the other state plans and Other Post-Employment Benefits (OPEB). VRS will present the overall details about the actuarial valuations for local pension plans in November and will mail individual details to each employer in late December.
VACo Contact: Erik Johnston, CAE