JLARC Presents VRS Oversight Report

July 15, 2020

As part of their July 6 meeting, the Joint Legislative Audit and Review Commission (JLARC) presented an oversight report of the Virginia Retirement System (VRS) as required by the Code of Virginia. The health and well-being of VRS is important to local governments as it administers retirement programs and other benefit programs for state and local government employees, including teachers. VRS receives funds from employer contributions, employee contributions, and investment income.

As previously reported, investment income is critical to ensuring that employer contributions meant to amortize long-term unfunded liabilities remain low. Increases in employer contributions directly impact the budgets of local governments. Due to recent economic uncertainty, VRS investments generated a negative 2.2 percent return for the one-year period ending on March 31, 2020. This represented a decrease of $3.5 billion in assets from a year ago. However, the investment performance for the three, five, 10, 20, and 25-year periods met or exceeded all performance benchmarks, demonstrating the long-term health of the System.

VRS staff also presented to the Commission, providing an overview of the System, investments, and administration. Staff also touched upon the impact of continuing trade tensions between the U.S. and China especially following increased unrest and Chinese government crackdowns in Hong Kong. Staff also discussed the monetary and fiscal policy response to the COVID-19 including the lowering of the Federal Reserve’s benchmark interest rate and the passage of the $483 billion Paycheck Protection Program (PPP) and Health Care Enhancement Act and the $2.3 trillion Coronavirus Aid Relief and Economic Security Act (CARES). VRS staff estimate that the U.S. equity market has discounted a quick economic recovery path as overly optimistic and barring a vaccine, the economy will likely follow a slow recovery path, thereby reducing the ability of corporate earnings to snap back quickly.

VRS serves more than 742,000 total members, retirees, and beneficiaries and has 598 participating local political subdivisions, including 93 counties. The fiduciary net position of the trust fund is $76.9 billion as of March 31st, 2020 and as based on assets, is the 18th largest among public and private pension systems in the United States. The two largest VRS pension asset areas are the Teachers plans and the Political Subdivision Employees plans, both by assets and number of members.

The full JLARC report and slides from the presentation can be found here and here respectively.

VACo Contact: Jeremy R. Bennett

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