Virginia Retirement
System
Overview Pension
Reform, Hybrid Plan
Fiscal Officers of Colleges and Universities
State Supported
FOCUS Spring 2014 Session
April 30, 2014
Barry C. Faison
VRS Chief Financial Officer
Agenda




Overview of Virginia Retirement System
Pension Reform and the Hybrid Plan
Hybrid Plan Update
Questions
Overview of
VRS
VRS Overview
VRS is the
st
21 largest
public or private pension system in the U.S.
with
more than
640,000
members, retirees and beneficiaries.
VRS Membership
As of December 31, 2013
Teachers
146,295
Political Subdivisions
105,096
State Employees
State Police Officers’ Retirement System
Judicial Retirement System
Virginia Law Officers’ Retirement System
78,477
2,013
405
9,520
Total Active Members
341,806
Retirees and Beneficiaries
174,953
Inactive and Deferred Members
123,955
VRS Total Membership
640,714
VRS Active Members
170,000
150,000
Totals
130,000
110,000
90,000
70,000
50,000
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Fiscal Year
State
Teacher
Localities
VRS Retirees
80,000
70,000
60,000
Totals
50,000
40,000
30,000
20,000
10,000
0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Fiscal Year
State
Teacher
Localities
VRS Employer Comparison
State
Teachers
Local
Actives:
Average Age
48.3
45.2
46.3
Average Vesting Service
12.8
11.9
11.1
$48,972
$48,994
$41,287
Avg. Age @ Retirement
63.0
61.8
62.1
Avg. Service @ Retirement
22.6
23.3
19.9
Avg. Benefit @ Retirement
38.4%
39.6%
34.7%
$20,441
$23,116
$15,367
Average Salary
Retirees: (in FY 2013)
Avg. Annual Benefit
Information obtained from the June 30, 2013 Actuarial Valuation.
Benefits Administered

Defined Benefit Pension Plans
–

Hybrid Pension Plans (Effective January 1, 2014)
–

VRS, SPORS, JRS, VaLORS
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)
Net Position – Restricted for Benefits
$62.3
$60
$58.4
$58.3
$55.1
$54.6
$48.7
$53.3
$47.7
$50
Assets in Billions
$44.1
$42.9
$40.8
$40
$40.0
$37.7
$35.7
$34.4
$34.7
$31.7
$26.9
$30
$22.2
$20
$10
$0
1996
1998
2000
2002
2004
2006
2008
2010
2012
12/31/2013
VRS Fiscal Year Investment Returns
25.0
20.0
15.0
10.0
FY 2013
Investment
Return was
11.8%
0.0
-5.0
-10.0
Investment Return Assumption
-15.0
-20.0
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
-25.0
1990
% Return
5.0
Pension Reform
and the
Hybrid Plan
Pension Reforms July 1, 2010

2010 - General Assembly established new plan for new
employees hired on or after July 1, 2010 (Plan 2)
–
–
–
–
–

Normal retirement changed to Social Security normal
retirement age
Unreduced benefits commencing at Rule of 90
Reduced retirement moved to age 60 with at least 5 years of
service
Five-year AFC formula
Revised COLA formula
2011 - General Assembly enacted 5/5 program for
Plan 1 state employees with offsetting salary increase.
Pension Reform: July 1, 2012
Pension Reform Passed by the 2012 General Assembly, effective
July 1, 2012 (FY 2013)
• Local governments and schools systems required to begin
imposing the 5 percent member contribution with offsetting salary
increases:
 83 percent of local government employers opted to impose a 5
percent member contribution with a 5 percent offsetting salary
increase -- increased to 86 percent July 1, 2013
 60 percent of school boards opted to impose a 5 percent member
contribution with a 5 percent offsetting salary increase -- increased to
73 percent July 1, 2013.
 Remaining employers elected a phase-in schedule with full
implementation no later than July 1, 2016
Pension Reform: July 1, 2012 (con’t.)
Pension Reform Passed by the 2012 General Assembly, effective
July 1, 2012 (FY 2013)
• General Assembly proposes to phase-in contribution rates for state
employee and teacher plans to achieve funding the VRS boardcertified rates
July 1, 2012
July 1, 2014
July 1, 2016
July 1, 2018
State
67.02%
78.02%
89.01%
100.00%
Teachers
69.53%
79.69%
89.84%
100.00%
• Local governments allowed to elect either the VRS Board-certified
contribution rate or an alternate rate:
• 90 percent of local governments elected the VRS Board-certified
contribution rate
• Phase-in employers will have NPO under GASB 27
Pension Reform: January 1, 2013
Pension Reform Passed by the 2012 General Assembly, effective
January 1, 2013 (FY 2013)
• Non-vested Plan 1 members became VRS Plan 2 members
• Benefit multiplier on new service for Plan 2 members was reduced from
1.70% to 1.65%
• Cost-of-Living Adjustment (COLA):
 No COLA until member who retires with less than 20 years of service has
received an allowance for one full calendar year after reaching unreduced
retirement age. All Plan 1 and Plan 2 members within 5 years of eligibility for an
unreduced benefit as of 1/1/13 are grandfathered
 COLA capped at 3% (first 2% of CPI-U plus one-half of the next 2%, for a
maximum total of 3%) for Plan 2 members
Pension Reform: January 1, 2014
Pension Reform Passed by the 2012 General Assembly, effective
January 1, 2014 (FY 2014)
• Hybrid plan becomes the retirement plan for all general public employees
hired on or after January 1, 2014
• Hybrid plan members also covered by VRS-administered VLDP or similar
employer-elected disability insurance benefit
• Current general public employees in Plan 1 and Plan 2 may elect by April
30, 2014 to move to the Hybrid Plan on July 1, 2014
• Hazardous duty members are exempt from the hybrid plan
Pension Reform: January 1, 2014
Hybrid Plan Features
Eligibility
 Those that participate in regular VRS (state employees, JRS, teachers
and local government employees) automatically enrolled in hybrid plan
from date of hire
 Public safety employees without hazardous duty coverage enrolled in
hybrid plan from the date of hire
 One-time election window for current employees
 New ORP eligible employees may elect the hybrid plan or ORP
 Current ORP employees not eligible to participate in new hybrid plan
 Public safety employees with hazardous duty coverage will not participate
in the hybrid plan, but retain current plan provisions (VaLORS, SPORS,
local enhanced hazardous duty coverage)
Disability
Provides a new optional disability program for localities. The localities will be
enrolled in the VRS-administered program unless they provide a disability
program with comparable coverage from another source
What Is a Hybrid Retirement Plan?
A defined benefit plan and a defined contribution plan form the components of
the VRS Hybrid Retirement Plan:
Defined Benefit
Component
Defined Contribution
Component
Disability Coverage
Provides the foundation of
member’s future retirement benefit
when he/she qualifies.
Provides tax-deferred savings plans
to build on the benefit under the
defined benefit component.
Virginia Local Disability Program,
or employer-provided comparable
plan.
VRS manages
the investments and related risk
for this component.
The member manages
the investments and related risk
for this component.
Short-Term Disability – ER paid
benefit; income replacement begins
at 60%; one-year waiting period
Mandatory EE/ER contribution:
4.0% (EE) + actuarial determined
rate (ER)
Mandatory EE/ER contribution:
1.0% (EE) + 1.0% (ER) = 2.0%
min. contribution
Long-Term Disability – begins after
6 months; provides 60% of predisability income; paid from trust
1.0 x years of service x AFC =
Benefit Amount
Voluntary contributions up to a
4% (EE) + 2.5% (ER) match =
6.5%
Long-Term Care – nursing/inhome care; not required in
employer comparable plan
Estimated Income Replacement Ratio
Final Pay $40,000
Age 60 with 30 Years of Service
Age 67 with 37 Years of Service
Assumptions & Methods:
Replacement Ratios are equal to the annuity payable at selected retirement age divided by the compensation in final year before retirement.
For purposes of calculating the social security replacement ratio at age 60, the replacement ratio is the expected benefit amount that will become payable at social security normal retirement date
unadjusted.
Salary increases are assumed to be 4% per year. Inflation/Cost-of-Living is assumed to be 2.5% per year.
Social Security is assumed to commence beginning at social security normal retirement age. Prior to that date only retirement benefit would be payable.
Mortality assumptions used to annuitize defined contribution balances are those prescribed by Internal Revenue Code 417e(3) for calculating minimum lump sum balances.
Defined contribution plan balances assume 6% pre-retirement investment returns.
Defined contribution plan balances are converted to annuity at retirement assuming a 4% investment return and a 2.5% benefit increase annually in retirement. It is unlikely that an
individual could purchase an annuity that included the 2.5% increases, but in order to be comparable to the defined benefit annuity, we have included this feature.
Hybrid Minimum contributions assume 1% employee contribution and corresponding 1% employer match. Maximum contributions assumes 5% employee contribution and
corresponding 3.5% employer match.
Assumes member works entire career under one benefit formula. (No transition)
Estimated Income Replacement Ratio
Final Pay $80,000
Age 60 with 30 Years of Service
Age 67 with 37 Years of Service
Assumptions & Methods:
Replacement Ratios are equal to the annuity payable at selected retirement age divided by the compensation in final year before retirement.
For purposes of calculating the social security replacement ratio at age 60, the replacement ratio is the expected benefit amount that will become payable at social security normal retirement date
unadjusted.
Salary increases are assumed to be 4% per year. Inflation/Cost-of-Living is assumed to be 2.5% per year.
Social Security is assumed to commence beginning at social security normal retirement age. Prior to that date only retirement benefit would be payable.
Mortality assumptions used to annuitize defined contribution balances are those prescribed by Internal Revenue Code 417e(3) for calculating minimum lump sum balances.
Defined contribution plan balances assume 6% pre-retirement investment returns.
Defined contribution plan balances are converted to annuity at retirement assuming a 4% investment return and a 2.5% benefit increase annually in retirement. It is unlikely that an
individual could purchase an annuity that included the 2.5% increases, but in order to be comparable to the defined benefit annuity, we have included this feature.
Hybrid Minimum contributions assume 1% employee contribution and corresponding 1% employer match. Maximum contributions assumes 5% employee contribution and
corresponding 3.5% employer match.
Assumes member works entire career under one benefit formula. (No transition)
Hybrid Plan
Update
Hybrid Implementation Preparation
Project Preparation Activities
Scope: Establish all essential enhancements to VRS business applications for administering
the hybrid plan such as eligibility, enrollments, contributions, accounting and general ledger.
Phase I






Issue RFP for a record keeper and investment services
Transition record keeping and investment services to ICMA
Modify VRS Systems (VNAV, RIMS, MUNIS, myVRS)
Develop a new Hybrid Retirement Plan Calculator
Train and communicate with external and internal stakeholders
Hold VLDP election window for all locals and schools
Phase II
 Develop/modify systems to accommodate the VLDP, retirement, purchase of prior service
 Enable systems to transfer Plan 1 and Plan 2 members to the hybrid plan 7/1/2014
 Develop a Plan Determination Tool to enable employers to counsel and enroll members
Employer Outreach
Employer Outreach (2013 - 2014)
Employer Update Articles
Ongoing, beginning in Jan. 2013
VRS Website (varetire.org)
Ongoing, beginning in Jan. 2013
Employer Roadshow Meetings
Spring outreach 2013 – 32 sessions
Fall outreach 2013 – 27 sessions
Employer Webinars
Ongoing
Employer Resource Website
Tools and resources for employers to
communicate with members on the
DC plan
Member Outreach
Member Outreach (January – April 2014)
Member Roadshow Meetings
January - April
Hybrid Retirement Plan
Handbook
Available on the VRS website and print
Webinars
Provide plan information and create
awareness of the opt-in period
Plan Comparison Guide
Compares Plan 1, Plan 2 and hybrid
Hybrid Opt-in Period
Communications Campaign
Ongoing
VLDP Handbook
Provides members disability plan information
Website for Members
Website designed exclusively for hybrid
members
Hybrid Plan Calculator
Provides plan comparison
Hybrid Enrollments
Hybrid Enrollment Statistics
Total Hybrid Members
3,874
(State – 1,025, Non-State – 2,849)
Total Balance in Hybrid 401(a) DC
Total Hybrid Assets
Hybrid 401(a) - $298,594 balance
Hybrid 457 - $6,184
Total Unique Employers with Hybrid
Members (as of 4/3/2014)
454
(State – 146, Non-State – 308)
Total Voluntary Contributions %
Elected During 1st Quarter
65
Member Login - Account Access
(ICMA-RC member portal)
31 in January, 96 in February, 163 in
March
(as of 4/3/2014)
(as of 3/17/2014)
Opt-in Overview
Plan 1 and Plan 2 employees may opt into the Hybrid
Retirement Plan by April 30; hazardous duty members are
not eligible for the hybrid.
January 1, 2014
• Hybrid Plan
Begins
• Plan 1 and Plan
2 Members Optin Period Begins
Early January
• Member
Resources
Available
April 30, 2014
• Member Opt-in
Period Ends
July 1, 2014
• Opt-in Members
Plan Effective
Date
Hybrid Plan Calculator
Hybrid Opt-In Window
Hybrid Calculator
Hybrid Opt-Ins
• 8,922 unique member users
• 3,825 members clicked on election
form PDF
• 1,021 employers have used the tool
• 44 submitted election forms
• 6 requested revocation forms
• 38 net elections on file
03/26/2014 - DCPAC
Questions?
Thank You