1. VRS Overview Virginia Governmental Employees Association Robert P. Schultze, VRS Director September 13, 2014

2. 2 Agenda VRS Overview Investments Summary Questions

3. VRS Overview

4. 4 VRS Total Membership Plan 1Plan 2HybridTotal Teachers101,19643,0471,105145,348 Political Subdivisions66,78335,6022,887105,272 State Employees52,77123,1932,40678,370 State Police Officers’ Retirement System (SPORS) 1,52048802,008 Virginia Law Officers’ Retirement System (VaLORS) 5,5583,85409,412 Judicial Retirement System (JRS)317690386 Total Active Members228,145106,2536,398340,796 As of July 31, 2014 Total Active Members Retirees/ Beneficiaries Inactive/ Deferred Members VRS Total Population 340,796180,880126,243*647,919* *Inactive/deferred members as of June 30, 2014

5. 5 Benefit Comparison StateTeachersLocal Actives: Average Age48.345.246.3 Average Service12.811.911.1 Average Salary$48,972$48,994$41,287 Retirees: (in FY 2013) Avg. Age @ Retirement63.061.862.1 Avg. Service @ Retirement22.623.319.9 Avg. Benefit @ Retirement38.4%39.6%34.7% Avg. Annual Benefit$20,441$23,116$15,367 Avg. Social Security Benefit at Age 62 $18,252$17,640$14,640 Information above obtained from the June 30, 2013, Actuarial Valuation.

6. 6 Funds Flow (estimated) Beginning Balance – July 1, 2013$58.4 Contributions$3.1 Net Investment Income$9.0 Total Additions $12.1 Total Deductions ($4.4) Net Additions$7.7 Ending Balance – July 1, 2014 $66.1 Cash Flow (contributions minus deductions) $(1.3) For the Fiscal Year Ended June 30, 2014

7. 7 Net Assets Available for Benefits Fiscal Year

8. 8 Funded Status: State Employees Assumptions: Fiscal Year 2014 investment return estimated at 15.7%. Other projected years’ investment returns assume 7.0% with 2.5% inflation rate. Assets estimated at actuarial value of assets (five-year smoothing). Projected Funded Status using Market Value of Assets (New GASB Standard) Projected Funded Status using Actuarial Value of Assets (Funding Standard) New GASB Accounting Rules will reflect funded status using Market Value of Assets effective 6/30/14 for plan reporting and 6/30/15 for employer reporting.

9. 9 Estimated VRS Employer Contribution Rates Estimated Contribution Rates by Fiscal Year 2013-142015 & 20162017 & 20182019 & 2020 State8.76%12.33%12.04%11.96% Teachers11.66%14.50%14.58%15.00% Added cost to achieve the 2015/2016 contribution rate increases is approximately $315 million for the biennium in General Funds. Fiscal Year 2014 investment return estimated at 15.7%. Above contribution rates are net of employee contributions. General Assembly committed to phase-in contribution rates for the teacher and state plans to the VRS board-certified rates as follows: July 1, 2012July 1, 2014July 1, 2016July 1, 2018 State67.02%78.02%89.01%100% Teachers69.53%79.69%89.84%100%

10. Investments

11. 11 VRS Fiscal Year Returns Fiscal Year

12. 12 Fund Performance VRS Return (As of June 30, 2014) 3-year9.5% 5-year12.3% 10-year7.4% 15-year6.1% 20-year8.8% 25-year8.7%

13. 13 VRS Asset Allocation as of June 30, 2014 (Dollar Amounts in Billions/Percent of Total Fund)

14. RetirementResources

15. 15 Retirement Preparedness in U.S. Households New study on financial preparedness of pre-retirees (Wharton Pension Research Council) in the U.S. found the following: Roughly half of U.S. households are unlikely to maintain their pre-retirement standards of living Compared to prior generations of retirees, current pre-retirees are less prepared for the following reasons: –People are living longer –Healthcare costs have risen dramatically –Social Security is less generous –401(k) plans have replaced defined benefit plans

16. 16 Retirement Planning More than 38 million U.S. working-age households do not have retirement accounts. (NIRS Feb. 2014) “Employees really need to be saving up to 15% of pay for 30 to 40 years to have a sufficient nest egg for retirement.” – Christine Marcks, president of Prudential Retirement “Overall, 75% of Baby Boomers say tax deferral is an important trait of a retirement investment.” – Insured Retirement Institute (IRI) “When they go through a retirement income calculation, 20% of participants increase the amount they contribute by five percentage points, from 4% to 9%. Turning up the deferral rate at age 32 or 33 can have a profound impact. ‘That’s the powerful moment of truth for them,’ ” says Marcks. – February 21, 2014 (PLANSPONSOR.com)

17. 17 Retirement Resources at VRS Visit www.varetire.org and set up a myVRS accountwww.varetire.org –Benefit Estimator –Financial Planner Review your Member Benefit Profile (MBP) Register for group seminars or one-on-one consultations View a video on your plan; view Financial Matters video series Review your plan member handbook and Getting Ready to Retire Guide

18. Summary

19. 19 Upcoming Issues 2015 General Assembly Session and 2014-16 Budget – Maintain adherence to commitment to fund the plan in the budget Pension Reform Is Still Alive and Well – Other states: several states still are in the midst of pension reform – Virginia: Hybrid plan implemented and plan used as a model for other states

20. 20 Upcoming Issues Pension Accounting – GASB pension rules go into effect in 2014 for VRS and in 2015 for employers – GASB just issued draft Other Post-Employment Benefit (OPEB) rules Contribution Rates – State and teacher contribution rates now expected to remain flat, a significant decrease over prior year’s projections

21. Questions?