4 VRS Overview VRS is the 22 nd largest public or private pension system in the U.S. There are almost 600,000 members, retirees and beneficiaries.
5 VRS Total Membership Teachers147,817 Political Subdivisions104,385 State Employees78,613 State Police Officers’ Retirement System (SPORS)1,766 Judicial Retirement System (JRS)408 Virginia Law Officers’ Retirement System (VaLORS)9,620 Total Active Members342,609 Retirees/Beneficiaries148,496 Inactive/Deferred Members105,774 VRS Overall Impact596,879 As of June 30, 2010
Benefit Comparison State 1 Teachers 1 Local 2 Actives: Average Age47.8945.0245.5 Average Service12.9111.6510.3 Average Salary$46,222$47,958$39,348 Retirees: Avg. Age @ Retirement60.6459.2561.1 Avg. Service @ Retirement24.61 19.5 Avg. Benefit @ Retirement41.84% 33.3% Avg. Benefit$17,023$20,814$13,791 9 1 – Indicates information from the 2010 actuarial valuation. 2 – Indicates information from 2009 actuarial valuation.
14 Funded Status What is meant by funded status: Compares assets available to pay benefits with present value of future liabilities Asset/liability ratio is typical measure Percentage of assets available to pay present value of all future liabilities (until the last member of the plan dies)
16 Funded Status: Local Governments 2009 Aggregate Funded Ratio – 570 Plans Note: 2009 average funded ratio of 570 plans = 94.5%
17 Contribution Rates 2010 - Eliminates employer contributions to VRS in the last five pay periods of Fiscal Year 2010. VRS estimates the rate holiday will reduce contributions to VRS from about $2.4 billion in FY 2010 to about $2.1 billion. 2011-2012 – Contribution rates for the pension programs and OPEBs funded by the General Assembly are provided in the following charts. 2012 – 2014 - In setting the employer retirement contribution rates in subsequent biennia, the Board shall calculate a separate, supplemental employer contribution rate that will amortize the FY 2011 and 2012 contribution shortfalls over a 10-year period using the Board's assumed long-term rate of return. The Governor shall include funds to support payment of such Board-approved, supplemental employer contribution rates in the budget submitted to the General Assembly.
Retirement Contribution Rates Rates* FY 2010 2009 Board Certified Rates FY 2010-12* Appropriations Act 2010-2011 Appropriations Act 2011-2012 2010 Interim Valuation Results State Employee 11.26%13.46%7.13%7.08%18.29% Teacher 13.81%17.91%8.93%10.16%22.41% Locals**13.00% n/a Locals w/o Haz. Duty** 11.90% n/a Locals with Haz. Duty** 15.0% n/a *Current FY 2010 rates are based on assumptions applied in the 2009 Appropriations Act (8% rate of return, 3% inflation rate, and a 30-year amortization). Board certified rates are based on the following assumptions (7.5% rate of return, 2.5% inflation rate, and a 20-year amortization period). These rates do not reflect the suspension of payments in the 4 th quarter. ** Average rate for localities. Contribution rates include the 5% member contributions.
19 Teacher Contribution Rates FY ‘84 – ‘14 Above rates include the 5% member contributions paid by employers. Assumes 7.00% rate of return and 2.50% inflation rate.
20 Local Government Contribution Rates (Averaged) Above rates include the 5% member contributions paid by employers. Assumes 7.00% rate of return and 2.50% inflation rate.
HB 1189/SB 232 Creates new plan design provisions (Plan 2) for state, teachers and local government employees hired on or after July 1, 2010 Creates a new plan (Plan 2) for Optional Retirement Plan (ORP) members hired on or after July 1, 2010. Does not affect current members or current retirees, who are under Plan 1. Members who left employment and did not take a refund are deferred members and remain in Plan 1. 22
23 2010 Legislation VRS Plan 1VRS Plan 2 Average Final Compensation Average of 36 highest consecutive months of creditable compensation Average of 60 highest consecutive months of creditable compensation Member Contributions (DB Plan) Employee or employer contributes 5% employee contribution State employees contribute 5% on pre- tax salary reduction basis. Schools/political subdivisions employees may contribute some or all of the 5%, depending upon the election by the employer Member Contributions (ORP Plan) 10.4% employer contribution8.5% employer contribution and 5% member contribution on a pre-tax basis. Higher education may increase the employer contribution to 8.9% provided it is paid with non-state funds. Normal Retirement Age Age 65Social Security Normal Retirement Age SPORS, ValORS and political subdivision hazardous duty: Age 60 Same as Plan 1
24 2010 Legislation VRS Plan 1VRS Plan 2 Retirement Multiplier VRS: 1.7% SPORS: 1.85% VaLORS: 1.7% or 2.0% Sheriffs: 1.85% Political subdivision hazardous duty: 1.7% or 1.85%, depending upon election Same. Unreduced Retirement VRS: Age 65 with at least 5 years of service or age 50 with at least 30 years of service VRS: Normal Social Security retirement age with at least five years of service credit or when age and service equal 90 SPORS, VaLORS, political subdivision hazardous duty: Age 60 with at least five years of service or age 50 with at least 25 years of service Same. JRS: Age 65 with weighted service equal to at least 5 years of service or age 60 with weighted service equal to at least 30 years of service Same.
25 2010 Legislation VRS Plan 1VRS Plan 2 Reduced Retirement VRS: Age 55 with at least 5 years of service or age 50 with at least 10 years of service VRS: Age 60 with at least five years of service SPORS, VaLORS, political subdivision hazardous duty: Age 50 with at least five years of service Same. JRS: Age 55 with weighted service equal to at least 5 years of service Same. COLA Matches first 3 percent increase in the Consumer Price Index-Urban and one- half of the remaining increase up to a maximum COLA of 5 percent, when provided Matches first 2 percent increase in the Consumer Price Index-Urban and one-half of the remaining increase up to a maximum COLA of 6 percent, when provided
26 2010 Legislation Employer Paying 5% Plan 1 Plan 2 Employee Paying 5% Plan 2 Employee Paying a Share of the 5% Schools14471 Municipals223648 Authorities/ Commissions 181491 Total54812010
Proposed Savings From Pension Reform (Teachers) 27 Above chart assumes all Plan 2 members pay the 5% member contribution.
Line of Duty Act The Line of Duty Act (LODA) Fund can be found in Item 258 of the Budget Bill; imposes annual contributions upon state and local agencies, beginning July 1, 2011. LODA provides health insurance and death benefits for hazardous duty employees and volunteers and their families upon death or disability in the line of duty. A new LODA Fund comes under VRS’ investment management. Contributions will be made by state and localities. Contribution rates will be calculated by VRS Board of Trustees in mid-December. Localities may opt out and provide for separate financing.
Pending Changes in Pension Accounting Rules GASB has issued “preliminary views” Final rules to be issued in two years Changes affecting local governments and school boards: 1.Pension liabilities/expenses go from footnotes to balance sheet 2.Pension assets would be marked to market causing significant volatility in annual reporting 3.Cost-sharing pension plans (VRS Teacher Plan) must allocate liabilities proportionally to each employer 30
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