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Virginia Retirement System Overview and Your Actuarial Reports

Virginia Retirement System Overview and Your Actuarial Reports. VGFOA Hampton Roads Regional Training Event April 28, 2014. Barry C. Faison VRS Chief Financial Officer. Agenda. Overview of Virginia Retirement System and Modernization Update History of Pension Reform in Virginia

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Virginia Retirement System Overview and Your Actuarial Reports

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  1. Virginia Retirement SystemOverview and Your Actuarial Reports VGFOA Hampton Roads Regional Training Event April 28, 2014 Barry C. Faison VRS Chief Financial Officer

  2. Agenda • Overview of Virginia Retirement System and Modernization Update • History of Pension Reform in Virginia • Hybrid Plan Information • Actuarial Valuations • GASB – New Standards • Questions

  3. Overview of VRS

  4. VRS Overview • VRS is the 21st largest public or private pension system in the U.S. • There are more than 640,000 members, retirees and beneficiaries.

  5. VRS Membership

  6. VRS Employer Comparison Information obtained from the June 30, 2013 Actuarial Valuation.

  7. VRS Active Members

  8. VRS Retirees

  9. Benefits Administered • Defined Benefit Pension Plans • VRS, SPORS, JRS, VaLORS • Hybrid Pension Plans (Effective January 1, 2014) • VRS, JRS • Other Post-Employment Benefit Plans • Group Life Insurance Program • Retiree Health Insurance Credit Program • Virginia Sickness and Disability Program • Virginia Local Disability Program (for local employees in the Hybrid Plan – Effective January 1, 2014)

  10. Net Position – Restricted for Benefits

  11. VRS Fiscal Year Investment Returns FY 2013 Investment Return was 11.8%

  12. Modernization Update

  13. Modernization Program • An evolving customer base • Customer expectations • New technologies for communication and contact • Customer’s knowledge • VRS focused on changes to meet customer needs • Superior Customer Service • High touch • ‘Turbo Tax’ approach • Benefit simulation/online application wizards • Customer education • Multi-year, multi-phase project • Replaced 20-year-old mainframe technology infrastructure with a web-based system

  14. Modernization – Employer Functionality

  15. In the Future for Members

  16. Modernization Program • Modernization program update: • Phase 3 was implemented November 5, 2012 • Employer functionality • Imaging, Enterprise Knowledge Support, Centralized Print, etc. • FY 2013 Year-end processes occurred in both new and legacy systems • Focus is on supporting the new system and transitioning resources to legislative work • Phase 4 (Member and Retiree functionality) will be restarted after Pension Reform • Member Portal • Benefit calculation • Benefit payments

  17. Actuarial Valuations

  18. Actuarial Valuation Report • Funding Formula Defined Benefit Plan Funding: C + I = B + E (Contributions + Investment Income = Benefits + Expenses) • Prepared annually • Evaluate the funded status of the Plan • Determine the appropriate contribution rate • Assumptions vary by employer size/coverage

  19. VRS Funding Policy – June 30, 2013 • June 30, 2013 Employer contribution rates reflect the new policy • 30-year amortization of unfunded actuarial liability as of June 30, 2013 • 30-year closed period (decreasing by one each year until reaching 0 and June 30, 2013 unfunded is fully funded. • Future annual changes in unfunded liability to be funded over closed 20-year periods

  20. Actuarial Experience Study • Conducted every four years • Compares assumed to actual • Basis for assumption changes • Assumption Changes Based on Experience Study 2008 to 2012 • Move to more current mortality table • Decrease real wage increase for non-LEOS • Decreased some disability rates • Reduced some retirement rates

  21. Actuarial Valuation Report Contents • Transmittal letter to governing body • Highlights of report results • Summary of valuation process • Major assumption changes • Summary of principal results • Plan contribution development • Accounting information • Actuarial cost method • Summary of benefit provisions • Data summary

  22. Summary of Results

  23. Normal Cost

  24. Development of the Annual Contribution

  25. Employer Rate Projections

  26. Schedule of Funding Progress

  27. Actuarial Assumptions – RSI

  28. Actuarial Assumptions – Other • Mortality – RP-2000 tables projected to 2020 and adjusted for VRS experience • Pre-retirement • Post-retirement • Post-disability • Retirement rates – Varies by Plan/Age/Sex • Disability rates – Varies by Age/Sex • Termination rates – Varies by Years of Service/Age/Sex • Salary increase rates – Varies by Years of Service

  29. GASB -New Standards

  30. Governmental Accounting Standards Board (GASB) Changes • Virginia law requires all state and local agencies (including VRS) to report financial statements in accordance with “Generally Accepted Accounting Practices” • VRS will provide data necessary valuation results required for disclosures • For Teacher cost-sharing pool, VRS will determine the “collective” data for the pool and the “proportionate share” for each locality

  31. Governmental Accounting Standards Board (GASB) Changes • Reasons behind GASB changes: • Improve consistency and transparency • Enhance decision usefulness of pension information • Extends only to financial reporting, however, funding changes possible to preserve cash flows • Effective dates: • Plan Administrators – FY 2014 • actuarial valuations as of June 30, 2013 • Employers – FY 2015 • actuarial valuations as of June 30, 2014 with analysis of changes since June 30, 2013

  32. Governmental Accounting Standards Board (GASB) Changes • Assumed Investment Return • Based on long-term expected return on assets held in trust unless the fund is expected to be depleted before all benefit payments are made, or • Based on blended single-rate (long-term rate while assets are available and municipal bond index for remaining period) • Projecting Assets • Benefit projections on closed group of participants • Contribution projections based on formal policies and past behavior • If past compliance, then future assumes compliance • If not, use average of last five-year payment history

  33. Impact of Changes • Significant liability will be brought onto the face of the financial statements • Funded ratios will be impacted • Apportionment of teacher cost-sharing plan liabilities will add more to locality liabilities • Accrued pension expenses will increase significantly due to shorter amortization periods • Constituent pressure on local officials for plan design changes to reduce costs

  34. VRS Actions • Insure that Actuarial Valuation reports have the necessary plan and valuation information for employer reporting • Evaluate required disclosures needed by employers • Verify the projected cash flows to insure adequacy of funding • Provide detailed information to compute pension expense • Develop a process for the allocation of Actuarial Valuation data for multiple-employer, cost-sharing pools (teachers) • Allocation will likely be based on covered payroll • Must account for possible legislation related to teacher pension funding

  35. VRS Actions (con’t.) • Develop a process for the allocation of Actuarial Valuation data for the state-employee groups for component units and other entities that issue separate financial reports • Work with the Auditor of Public Accounts to provide a way to make usable information available to auditors in a timely manner • Prepare a separate report on actuarial data, allocations, etc. • Update VRS-provided pension disclosure guidance • Update information in Uniform Financial Reporting Manual and Local Audit Specifications • Prepare for similar changes for OPEBs

  36. Questions?Thank you

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