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

2. VGFOA – June 8, 2011 Presentation Goals State of Saving for College 529 Plans Virginia College Savings Plan Regulatory Challenges 2

3. VGFOA – June 8, 2011 State of Saving for College 3

4. VGFOA – June 8, 2011 Tuition and Fee Increases 4 Source: The College Board, Trends in College Pricing 2010

5. VGFOA – June 8, 2011 Cost of College 5 Source: The College Board, Trends in College Pricing 2010

6. VGFOA – June 8, 2011 Public Appropriations 6 Source: The College Board, Trends in College Pricing 2010 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

7. VGFOA – June 8, 2011 Public Appropriations 7 Source: The College Board, Trends in College Pricing 2010

8. VGFOA – June 8, 2011 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) 8

9. VGFOA – June 8, 2011 How Much Have You Saved for College? 9 Source: College Savings Foundation – 2010 Survey of Parents

10. VGFOA – June 8, 2011 How Do Parents Plan on Funding College? 10 Source: College Savings Foundation - 2010 Survey of Parents

11. VGFOA – June 8, 2011 Primary Savings Vehicle 11 Source: College Savings Foundation - 2008 Parents Survey

12. VGFOA – June 8, 2011 Saving v. Borrowing 12 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. VGFOA – June 8, 2011 Saving v. Borrowing (cont.) 13 Source: College Savings Foundation – 2010 Survey of Parents

14. VGFOA – June 8, 2011 529 Plans 14

15. VGFOA – June 8, 2011 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 15

16. VGFOA – June 8, 2011 Growth of the National 529 Market – January 2000 - June 2010 16 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. VGFOA – June 8, 2011 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) 17

18. VGFOA – June 8, 2011 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 18

19. VGFOA – June 8, 2011 Virginia College Savings Plan 19

20. VGFOA – June 8, 2011 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:  VPEP SM  VEST SM  CollegeAmerica ®  CollegeWealth ® 20

21. VGFOA – June 8, 2011 Our Programs 21 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. VGFOA – June 8, 2011 VPEP Assets and Account Growth 22

23. VGFOA – June 8, 2011 VEST Assets and Account Growth 23

24. VGFOA – June 8, 2011 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 24

25. VGFOA – June 8, 2011 Assets Under Management 25 Number of AccountsAssets Under Management Program June 30, 2009June 30, 2010April 30, 2011June 30, 2009June 30, 2010April 30, 2011 VPEP 71,84771,37371,415$1,335,093,400$1,613,149,325$1,952,551,463 VEST 115,957129,415141,402$1,056,274,799$1,346,385,956$1,768,049,095 CollegeAmerica 1,807,2111,893,2711,921,918$21,115,858,233$25,021,126,526$32,671,015,902 CollegeWealth 6012,7605,034$4,986,631$13,911,187$23,282,280 Total 1,995,6162,096,8192,139,769$23,512,213,064$27,994,572,994$36,414,898,741

26. VGFOA – June 8, 2011 VPEP Assets Under Management Market Value by Asset Class as of April 30, 2011 26

27. VGFOA – June 8, 2011 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 27

28. VGFOA – June 8, 2011 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 28

29. VGFOA – June 8, 2011 VPEP – New Target Asset Allocation (cont.) 29

30. VGFOA – June 8, 2011 VPEP – Transition to Target Asset Allocation 30

31. VGFOA – June 8, 2011 VPEP Performance ending 4/30/2011 31

32. VGFOA – June 8, 2011 VPEP Annual Returns Since Inception 32 *2011 performance through 4/30/2011

33. VGFOA – June 8, 2011 Investment Return Assumptions YearReturn 1996 – 20008.0% 20017.5% 20027.0% 20036.75% 2004 - 20107.0% 33

34. VGFOA – June 8, 2011 VPEP Actuarial Tuition Increase Assumptions* UniversitiesCommunity Colleges Academic Year June 30, 2010 assumption Prior assumption June 30, 2010 assumption Prior assumption Fall 201110.00%8.50%9.50%7.50% Fall 201210.00%7.50%8.50%7.50% Fall 2013 forward7.50% *Assumption includes tuition and all mandatory fees (both education and general fees and non-education and general fees) 34

35. VGFOA – June 8, 2011 Actuarial Valuation since Inception FY Ended: Actuarial Value of Program Assets Actuarial PV of Future Obligations Actuarially Funded Percentage Actuarial Reserve (Deficit) 2001$576.2$531.0109%$45.2 2002723.9781.893%(57.9) 2003945.21,177.880%(232.6) 20041,029.31,157.789%(128.4) 20051,370.41,430.496%(60.0) 20061,591.01,617.598%(26.5) 20071,852.71,730.5107%122.2 20081,839.61,891.497%(51.8) 20091,625.71,909.885%(284.1) 20101,887.72,096.090%(207.4) 35

36. VGFOA – June 8, 2011 Historical Funded Status and Actuarial Reserve 36 Funded Percentage Actuarial Reserve

37. VGFOA – June 8, 2011 Regulatory Challenges 37

38. VGFOA – June 8, 2011 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 38

39. VGFOA – June 8, 2011 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 39

40. VGFOA – June 8, 2011 9001 Arboretum Parkway Richmond, Virginia 23236 Toll Free:1-888-567-0540 On the web:Virginia529.com 40