VRS Realizes 6.7% Investment Return for FY 2019 – What Comes Next?

September 24, 2019

The Virginia Retirement System (VRS) recently announced that it had achieved a 6.7% return on its investment portfolio for FY 2019. The net position of the trust fund is now at a new high of $82.3 billion. Even though all major asset classes within the VRS portfolio posted positive returns, VRS had anticipated a rate of return of 7% for FY 2019.

As previously reported, though a difference of 0.3% may seem small, it may also necessitate a lowering of the assumed annual rate of return going forward and lead to higher employer contribution rates. This would have a direct impact on state and local government budgets. Though Virginia code mandates the determination of employer contribution rates in “a manner so as to remain relatively level,” at the July 15th meeting of JLARC, VRS staff estimated that lowering the assumed rate of return by 0.25% could have a potential fiscal impact of more than $200 million.

In October, the VRS plan actuary will present the State and Teacher plan actuarial reports to the VRS Board and recommend to the VRS Board contribution rates to support the plans. In November, the VRS Board will receive a report from the plan actuary that will provide information on all political subdivision plans in aggregate. Each local government will receive its custom actuarial report after the first of the year, which will include its contribution rates for the next biennium.

Lowering the assumed rate of return to reflect the realities of a changing market would likely be beneficial to the long-term fiscal health of VRS, even if it is painful to the budgeting process. However, additional state cash infusions to VRS may help offset any lower rate of return and maintain the funded status of the pension plans that VRS administers, contributing to the long-term fiscal stability of the state and local government. This was done in recent years when the General Assembly made large one-time appropriations to pay down the 2010-2012 deferred contributions for State and Teacher plans.

VRS also released its latest monthly publication of Member News. This issue includes an overview of the Hybrid Retirement Plan Learning Channel, Auto-Escalation for Hybrid Plan members, as well as information detailing retirement planning tools and management options. To subscribe to this newsletter, please visit the following site.

VRS serves more than 722,000 total members, retirees, and beneficiaries. The fiduciary net position of the trust fund is $82.3 billion and as based on assets, is the 19th largest among public and private pension systems in the United States.

The VRS Board of Trustees will meet next on October 10 at 1:30 p.m. in Richmond. VACo staff will continue to report and engage on these issues.

VACo Contact: Jeremy R. Bennett

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