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Gary Ometer, CPA, Chief Financial Officer June 8, 2011 PowerPoint Presentation
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Gary Ometer, CPA, Chief Financial Officer June 8, 2011

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  1. Presentation to:Virginia Government Finance Officers’ Association“Virginia College Savings Plan – Program Overview and a CFO’s Viewof Surviving Recent Market Challenges” Gary Ometer, CPA, Chief Financial Officer June 8, 2011 Presented by:

  2. Presentation Goals • State of Saving for College • 529 Plans • Virginia College Savings Plan • Regulatory Challenges

  3. State of Saving for College

  4. Tuition and Fee Increases Source: The College Board, Trends in College Pricing 2010

  5. Cost of College Source: The College Board, Trends in College Pricing 2010

  6. Public Appropriations Annual Percentage Changes in State Appropriations for Higher Education per Full-Time Equivalent (FTE) Student and in Tuition and Fees at Public Four-Year Institutions in Constant 2009 Dollars, 1979-80 to 2009-10 Source: The College Board, Trends in College Pricing 2010

  7. Public Appropriations Source: The College Board, Trends in College Pricing 2010

  8. Saving For Funding College • Funding Sources • Savings (529 Plans and other savings vehicles) • Scholarships (academic and need-based) • Grants (federal and state) • Loans (federal, state, school) • Cash-on-hand (parents, students) • Scholarships (athletic)

  9. How Much Have You Saved for College? Source: College Savings Foundation – 2010 Survey of Parents

  10. How Do Parents Plan on Funding College? Source: College Savings Foundation - 2010 Survey of Parents

  11. Primary Savings Vehicle Source: College Savings Foundation - 2008 Parents Survey

  12. Saving v. Borrowing Q. Do you plan on borrowing money to attend college/post-secondary school? Q. Are you concerned with the debt burden you may be faced with after college or higher education? Source: College Savings Foundation – 2011 Survey of Youth

  13. Saving v. Borrowing (cont.) Source: College Savings Foundation – 2010 Survey of Parents

  14. 529 Plans

  15. What is a 529 Plan? • Education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs • Section 529 Internal Revenue Code, enacted in 1996 • Plans can be used to meet qualified higher education expenses at eligible educational institutions • Tax advantaged • Two types: • Prepaid plans • Savings plans

  16. Growth of the National 529 Market – January 2000 - June 2010 • Beginning in 2001, participation in savings plans far outpaced prepaid plans • Savings plan assets decreased more dramatically than prepaid assets in 2008 with similar increases in 2009 • Asset and account growth across remained relatively unchanged between year-end 2009 and mid-year 2010 Source: College Savings Plan Network (“CSPN”); data as of June 30, 2010

  17. Benefits of 529 Plans • Federal tax benefits – earnings grow free from federal tax, and withdrawals for qualified higher education expenses are likewise free from federal tax • State tax benefits – Virginia 529 plan account owners with Virginia taxable income are eligible for up to a $4,000 tax deduction per contract or account with an unlimited carryforward – other states’ plans may also provide state tax benefits • No income limits – no calculations required to determine whether you may contribute • Virginia has a $350,000 aggregate limit per beneficiary • Donor retains control of funds – account owner rather than beneficiary retains control of account assets and determines amount and timing of distributions (VPEP distributions paid directly to college)

  18. Benefits of 529 Plans (cont.) • You may open an account for your child, grandchild, spouse, friend or yourself • Plan assets may be used to pay qualified higher education expenses at any eligible educational institution in the world – expenses include tuition, room and board, books, supplies and certain fees (VPEP covers tuition and mandatory fees only) • Flexible – account owners may change beneficiaries without penalty provided the new beneficiary is a member of the previous beneficiary’s immediate family • Rollovers – Can roll from one program to another • Low maintenance – Virginia accounts may be set up with a variety of payment plans (depending on VPEP, VEST, etc.) and Virginia savings plans offer a number of investment options

  19. Virginia College Savings Plan

  20. At a Glance… • The Virginia College Saving Plan (VCSP) is… • An independent state agency • An administrator of Internal Revenue Code §529 Qualified Tuition Programs • The country’s largest 529 plan, with more than 2.1 million accounts as of April 30, 2011 • 77 employees, headquartered in Richmond, VA • Investment options: • VPEPSM • VESTSM • CollegeAmerica® • CollegeWealth®

  21. Our Programs Virginia Prepaid Education Program (VPEP) - allows families to purchase contracts for future tuition and mandatory fees at Virginia public colleges and universities. Opened in 1996. Virginia Education Savings Trust (VEST) - a direct-sold savings program offering age-based evolving portfolios and static investment portfolios featuring Vanguard and other mutual funds. Opened in 1999. CollegeAmerica - a broker-sold savings program offering a wide selection of the American Funds portfolios, one of the largest mutual fund families in the country. Opened in 2002. CollegeWealth - FDIC-insured 529 savings accounts offered through participating banks including Union First Market Bank and BB&T. Opened in 2007.

  22. VPEP Assets and Account Growth

  23. VEST Assets and Account Growth

  24. Program Statistics Distributions began in 2000 Over $681 million distributed through 6/30/10 (VPEP and VEST) VPEP Student Attendance – 2010 Fall Semester • 67% in-state public four-year institutions* • 13% community college • 6% in-state private • 14% at more than 460 out-of-state schools * 64% of students (43% overall) attending in-state public institutions attend University of Virginia, Virginia Tech, William & Mary, James Madison and Virginia Commonwealth University

  25. Assets Under Management

  26. VPEP Assets Under Management Market Value by Asset Class as of April 30, 2011

  27. 2007-2009 Financial Meltdown • Causes Domestically: • Poor lending decisions • Poor borrowing decisions • Excessive leverage (individual / corporate / government) • Lax risk management • Misaligned incentives • Antiquated and dysfunctional regulatory framework • Predatory rather than productive bankers

  28. VPEP – New Target Asset Allocation • In 2008 recognized that the VPEP portfolio volatility (risk) was not generating returns commensurate with volatility • Desire to review VPEP’s long-term expected liabilities and cash flows versus the assets invested under VPEP • Asset Liability Modeling study in 2009 with goal of finding optimal balance between investment risk and long-term cost • Report completed and presented by VCSP’s investment consultant and actuary in June 2009 • Investment Advisory Committee and Board approved new target asset allocation • Decreased: Domestic equity and core fixed income • Increased: Emerging market equity and high yield fixed income • Added: Emerging market debt and alternatives

  29. VPEP – New Target Asset Allocation (cont.)

  30. VPEP – Transition to Target Asset Allocation

  31. VPEP Performance ending 4/30/2011

  32. VPEP Annual Returns Since Inception *2011 performance through 4/30/2011

  33. Investment Return Assumptions

  34. VPEP Actuarial Tuition Increase Assumptions* *Assumption includes tuition and all mandatory fees (both education and general fees and non-education and general fees)

  35. Actuarial Valuation since Inception

  36. Historical Funded Status and Actuarial Reserve Actuarial Reserve Funded Percentage

  37. Regulatory Challenges

  38. Government Employees • “You give 100 percent in the first half of the game, and if that isn’t enough in the second half you give what’s left.” Yogi Berra

  39. Recent Regulatory Changes / Announcements • Federal Trade Commission Red Flags Rule • Dodd-Frank Wall Street Reform and Consumer Protection Act • Municipal Securities Rulemaking Board (MSRB) • Securities and Exchange Commission (SEC) • HR 529

  40. 9001 Arboretum Parkway Richmond, Virginia 23236 Toll Free:1-888-567-0540 On the web:Virginia529.com