1. Virginia Government Finance Officers’ Association 2011 Spring Conference Virginia Retirement System Update for Local Government June 10, 2011 Barry C. Faison, Chief Financial Officer

2. 2 Agenda  Profile of VRS Members  Funding the Benefit  2011 Legislation Review and Contribution Rates  Pension Reform Initiatives  VRS Modernization

3. Profile of VRS Members

4. 4 VRS Overview  VRS is the 22nd largest public or private pension system in the U.S.  There are almost 600,000 members, retirees and beneficiaries.

5. 5 VRS Total Membership Teachers145,901 Political Subdivisions103,773 State Employees77,998 State Police Officers’ Retirement System (SPORS)1,796 Judicial Retirement System (JRS)406 Virginia Law Officers’ Retirement System (VaLORS)9,645 Total Active Members339,519 Retirees/Beneficiaries154,750 Inactive/Deferred Members105,556 VRS Overall Impact599,825 As of December 31, 2010

6. 6 Active Members

7. 7 Retirees

8. Benefit Comparison StateTeachersLocal Actives: Average Age47.8945.0245.90 Average Service12.9111.6510.70 Average Salary$46,222$47,958$39,329 Retirees: Avg. Age @ Retirement60.6459.2561.20 Avg. Service @ Retirement24.61 18.80 Avg. Benefit @ Retirement41.84% 33.60% Avg. Annual Benefit$17,023$20,814$14,664 8 Information obtained from the June 30, 2010 Actuarial Valuation.

9. Funding the Benefit

10. 10 Funding VRS Benefits C + I = B + E C = ContributionsI = Investment Income B = Benefits PaidE = Expenses (administration) B depends on: C depends on: -Plan Provisions-Short-term:Actuarial assumptions -ExperienceActuarial cost methods -Long-term:I, B & E  68% of VRS benefit costs funded by investment earnings  32% of VRS benefit costs funded by employee/employer contributions

11. 11 Net Assets Available for Benefits Estimate as of 12/31/2010

12. Asset Allocation 12 As of April 5, 2011

13. VRS Fiscal Year Returns 13

14. 14 Funded Status: Teacher and Local Plans 2010 Valuation Assumptions: 7.00% assumed rate of return 2.50% inflation & 20-year amortization period

15. 2011 Legislation Review and Contribution Rates

16. 2011 Legislation 16 Bill NumberPatronDescription HB 1794TataAuthorizes VRS collect overpayment of retirement benefits from the retiree’s employer under certain conditions. HB 2095 Jones, S. C.Provides that a member could forfeit his retirement benefits if convicted of a felony that arose out of misconduct in any position covered under the VRS. HB 2096Jones, S. C.Permits any constitutional officer who has 20 or more years of creditable service, and whose office is abolished, to retire with unreduced benefits (i) at the age of 60 if the officer is first elected to office after July 1, 2010, and (ii) at the age of 50 for all others.

17. Member Contributions FY 2012 Budget (July 1, 2011 – June 30, 2012) State Employees  5% salary increase for Plan 1 members  Plan 1 members pay the 5% member contribution  Plan 2 employees continue to pay the 5% member contribution, as of July 1, 2010. Local Government Employees  Employers who made the election continue to pay the 5% member contribution for Plan 1 members  For Plan 2 members, employer may elect to have employee pay the member contribution. Employers may change their election each fiscal year. Teachers  Employer continues to pay the 5% member contribution for Plan 1 members  For Plan 2 members, employer may elect to have employee pay the member contribution. Employers may change their election each fiscal year. 17

18. Employer Contributions GovernorConference Report Increased by 2% (ER rate 5.16% to 7.16%) FY 2012 Increase in Contributions $157.4 million Contribution rates increased by 1.17% effective July 1, 2011 (ER rate 5.16% to 6.33%) FY 2012 Increase in Contributions $92.1 million 18 Teacher Contribution Rates Local Contribution Rates – No change

19. Pension Reform Initiatives

20. Pension Reform Efforts in VA YearReform Effort 2008General Assembly requests JLARC Compensation Study 2010General Assembly creates Plan 2 for members hired on or after July 1, 2010:  Normal retirement changed to Social Security normal retirement age  Unreduced benefits commencing at Rule of 90  Reduced early retirement benefits moved to age 60 with at least five years of service  Members required to pay 5 percent member contribution  COLA formula revised  Five-year AFC formula 2011General Assembly enacted 5/5 program for Plan 1 state employees  State employee Plan 1 members required to pay 5 percent member contribution  Offset with 5 percent salary increase 2012General Assembly will consider JLARC recommendations for additional pension reform initiatives 20

22. Modernization Program Goals Provide more online tools and services for employers, members and retirees Streamline business processes Replace 20-year-old technology infrastructure and eliminate costs to maintain it Increase VRS and employer staff efficiency while maintaining superior customer service to a growing population

23. Builds on the familiarity you already have with myVRS Will replace the current tools you use today, such as the PC Package and WebER Will be Web- and Windows-based my VRS Navigator

24. Changes to Employer Reporting You will submit new employees and employee data changes only Using the data you reported, myVRS Navigator will calculate: –employees’ creditable compensation and service credit –member and employer contributions –purchase of prior service costs You will confirm contribution amounts and authorize your payment

25. Jan. 2011 July 2011 Jan. 2012 July 2012 Jan. 2013 July 2013 Jan. 2014 July 2014 Modernization Timeline March 2012 Implementation of myVRS Navigator for employers, including: Online enrollment and data maintenance Contribution remittance Contacts management VRS-calculated creditable compensation and contributions March 2012 Implementation of myVRS Navigator for employers, including: Online enrollment and data maintenance Contribution remittance Contacts management VRS-calculated creditable compensation and contributions Fall 2014 Implementation of myVRS Navigator for members and retirees, including: Online retirement application Online refund application Fall 2014 Implementation of myVRS Navigator for members and retirees, including: Online retirement application Online refund application Dates and activities may be added or adjusted as the program progresses. Summer 2011 Employer pilot Summer 2011 Employer pilot Early 2012 Employer batch certification begins Employer training begins Early 2012 Employer batch certification begins Employer training begins

26. 26 Keeping You Informed

27. Webinars archived at www.varetire.orgwww.varetire.org Keeping You Informed May 2011 myVRS Navigator Sneak Peek: Enrolling and Updating Employees March 2011 myVRS Navigator Sneak Peek: Employer Dashboard and Consolidated View May 2010 Creditable Compensation and Service Credit Accrual Feb. 2010 Modernization: Enrollment and Employer Reporting Oct. 2009 Introduction to Modernization

28. Thank you!