#1V Virginia Retirement RS System VRS Overview General Government Subcommittee Senate Finance and Appropriations Committee Presented by Patricia S. Bishop, VRS Director January 23, 2024 K-9 DEPOLICE#22 M THOM MANT THCORESS WOMAN Chulk URL CHULY son 103 UHT THI Serving Those Who Serve Others Helping Members Plan for Tomorrow, Today#3Agenda V Virginia Retirement RS System ■ VRS Overview ■ Investments ■ Contribution Rates and Funded Status ■ Return-to-Work ■ Line of Duty Act ■ Judicial Retirement System ■ Summary ■ 2024 Legislation W#4V Virginia RS Retirement System VRS Overview Virginia Retirement System 1300 East Main Street#55 VRS Overview 14th largest RS Virginia Retirement System 801,226 active and retired members As of June 30, 2023 42nd largest public or private pension system in the world** public or private pension system in the United States* * As ranked by Pensions & Investments in 2023 ***** As ranked by Pensions & Investments in 2022#6นา 6 VRS Total Membership as of June 30, 2023 Virginia Retirement RS System Plan 1 Plan 2 Hybrid Total Teachers 55,568 26,901 71,682 154,151 Political Subdivision Employees 31,794 31,047 50,598 113,439 State Employees 24,761 12,585 39,172 76,518 State Police Officers' Retirement System (SPORS) 919 949 1,868 Virginia Law Officers' Retirement System (VaLORS) 1,858 5,561 7,419 Judicial Retirement System (JRS) 141 42 273 456 Total Active Members 115,041 77,085 161,725 353,851 Total Active Members 353,851 Retirees/ Inactive/Deferred VRS Total Beneficiaries 239,733 Members 207,642 Population 801,226#77 Service-Cost Relationship RS Relationship between VRS service and pension administration cost Virginia Retirement System Relative Service Service Score - All Average Score 25 High Service, Low Cost 20 8° O 15 10 5 0 -5 -10 -15 -20 -25 Low Service, Low Cost -30 -$200 -$100 $0 $100 $200 High Service, High Cost Pension Administration Cost $113 $74 VRS SCORE PEER AVERAGE COST Total Service Score 83 78 Low Service, VRS SCORE High Cost PEER MEDIAN SCORE $300 $400 Relative Admin. Cost = Admin. Cost - All Average Admin. Cost O Peer O All VRS © 2023 CEM Benchmarking Inc.#8V Virginia RS Retirement System Investments . 225 INDEX L 1264 30.63#9VRS Fiduciary Duty RS Virginia Retirement System Administer the trust fund solely in the interests of VRS members, retirees and beneficiaries Constitution of Virginia ◉ Code of Virginia Internal Revenue Code 9 Manage assets with care, skill, prudence and diligence Trustees carry out the Board's fiduciary duties and responsibilities Protect long-term value of investment portfolio Provide benefit security to members and rate stability for employers Maintain broadest possible opportunity set in the investment portfolio Divesting from/not investing in certain sectors may contradict fiduciary requirements Investment income has historically funded two-thirds of benefit payments#1010 Asset Allocation as of June 30, 2023 RS Total Fund Market Value = $105.0 billion (Dollar Amounts in Billions/Percent of Total Fund) Exposure Management Portfolio, Multi-Asset Public Strategies, $3.7 / 3.5% Private Investment Partnerships, $2.7 / 2.6% $0.9 / 0.9% Cash, $2.0/ 1.9% Public Equity, $34.7 / 33.0% Virginia Retirement System Private Equity, $19.1/18.2% Real Assets, $14.2 / 13.5% Fixed Income, $13.5 / 12.8% Credit Strategies, $14.3 13.6 % Difference in totals are due to rounding. Source: Bank of New York Mellon#1111 VRS Invests for the Long Term VRS Return (as of June 30, 2023) 1-year 6.1% 3-year 10.8% 5-year 8.0% 10-year 8.2% 15-year 6.8% 20-year 7.9% 25-year 6.8% Source: Bank of New York Mellon RS Virginia Retirement System#12V Virginia RS Retirement System Contribution Rates and Funded Status 300 675 20 bit. 20 31.68 2,766 157.90 30 M Pan Positi Post a Post k click click Postb.com tech f Posth.duurz eandé Postb.easy bluefd Postb.eur aandf RATE ET RATE DECAL DOW JONES SAGOO 9440 9280 9120 960 7 4#1313 Contribution Rates RS Virginia Retirement System جانا $ $ Contribution rates continue to remain fairly stable. Recent infusions and maintaining higher contribution rates have improved plan health and generated long-term savings. ■ Meaningful positive steps taken, but unfunded liabilities remain. ■ Hybrid Retirement Plan deploys a shared risk model and serves to lower future employer benefit costs.#1414 Separate Payments for DB/DC V Virginia RS Retirement System Beginning July 1, 2024, employers will submit separate payments: Remit defined benefit contributions for employees in all plans to VRS each month Remit defined contribution amounts for hybrid plan Y members to MissionSquare Retirement each pay period#15Employer Contribution Rate - Teacher Plan - Fiscal Years 2025 & 2026 V Virginia Retirement RS System Estimated defined contribution component no longer included in the employer contribution rate. 8.25% 0.28% 5.68% Total Defined Benefit Rate 14.21%. 15 ■Employer Normal Cost Admin Expense ■UAL payment ■ DC Hybrid ■ Effective July 1, 2024, the Board-certified retirement contribution rate no longer includes an amount for expected contributions to the defined contribution component of the Hybrid Retirement Plan. In addition to paying the defined benefit rate shown above, the employer is also responsible for funding the employer contributions to the defined contribution plan on behalf of hybrid plan members which will be between 1.0% -3.5% of a hybrid plan member's payroll depending on the match of employees' voluntary contributions. ■ For budgeting purposes, VRS recommends that employers review their most recent MissionSquare remittance related to employer mandatory and matching contributions to the hybrid plan to determine the current funding amount.#1616 Contribution Rates VRS Employer Contribution Rates RS Virginia Retirement System FY 2023/2024 Plan Board Certified FY 2025/2026 Appropriation Act DB + DC Estimated DC DB Only DB Only State 14.46% 12.52% 12.52% 1.35% Teachers 16.62% 14.21% 14.21% 1.02% SPORS 29.98% 31.32% 31.32% N/A VALORS 24.60% 22.81% 24.60% N/A JRS 30.67% 30.66% 30.67% 2.24% The Governor's budget provides higher rates for VALORS and JRS than VRS Board-certified rates. The FY 2025-2026 board-certified employer contribution rates are only the defined benefit contribution rate. On July 1, 2024, VRS will separate the defined benefit and defined contribution rates for reporting purposes. Funding for the employer contributions to the defined contribution plan on behalf of hybrid plan members will be between 1.0% -3.5% of a hybrid plan member's payroll depending on participant behavior and the employer match of employees' voluntary contributions.#1717 Funded Status: State 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 3.0.0% 20.0% 10.0% 88.0% 84.0% RS New GASB accounting rules reflect funded status on the market value basis beginning in 2014 The funded status for FY 2023 based on the actuarial value of assets was 79.0% 75.2% 70.6% 65.6% 65.1% 74.1% 71.2% 71.5%-76.3% 80.2% 81.0% 81.7% 82.4% 83.3% 83.9% Virginia Retirement System State Plan Unfunded Liability as of 6/30/2023 $6.1 Billion using Actuarial Assets $5.8 Billion using Market Assets 0.0% 76.8% 75.2% 2008 up to 2013 & Market Value of Assets 2014 Forward Notes: 2009 Historical Funded Status - Actuarial Value of Assets 72.9% 86.5% 81.3% 2010 2011 2012 2013 2014 Projected funded status based on assumed investment returns of 6.75% and inflation of 2.5%. GASB Accounting rules reflect funded status using Market Value of Assets effective 6/30/14 for Plan Reporting and 6/30/15 for Employer Reporting. 2015 2016 2017 2018 2019 2020 2021 2022 Projected Funded Status using Market Value of Assets (New GASB Standard) 2023 2024 2025 2026 2027 2028#18Funded Status: Teachers 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Virginia Retirement System 62.1% 65.4% 71.3% 69.2% 73.6% New GASB accounting rules reflect funded status on the market value basis beginning in 2014 75.1% 74.1% 86.5% 71.7% 81.1% 80.8% 81.9% 82.9% 83.8% 84.5% The funded status for FY 2023 based on the actuarial value of assets was 79.7% RS 86.0% 79.8% 76.1% 68.6% 66.6% 62.4% Teacher Plan Unfunded Liability as of 6/30/2023 $12.0 Billion using Actuarial Assets $11.3 Billion using Market Assets 2008 2009 2010 2011 2012 2013 2014 Notes: Historical Funded Status - Actuarial Value of Assets up to 2013 & Market Value of Assets 2014 Forward Projected Funded Status using Market Value of Assets (New GASB Standard) Projected funded status based on assumed investment returns of 6.75% and inflation of 2.5%. GASB Accounting rules reflect funded status using Market Value of Assets effective 6/30/14 for Plan Reporting and 6/30/15 for Employer Reporting. 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 18#1919 Other Post-Employment Benefits (OPEBS) Contribution Rates by Fiscal Year Retirement V Virginia RS System Fiscal Year 2025/2026 Employer Contribution Rates Group Life HIC State Plan HIC Teachers VSDP Board Certified Appropriation Act 1.18% 1.34% 0.90% 1.12% 1.03% 1.21% 0.50% 0.50% HIC Locals in Aggregate 0.36% 0.36% HIC Constitutional Officers 0.32% 0.36% HIC Social Services 0.26% 0.37% HIC Registrars 0.17% 0.32% VLDP Teachers 0.45% 0.45% VLDP Political Subdivisions 0.74% 0.74% The Governor's budget provides higher rates for GLI and state-funded HIC plans than VRS Board-certified rates.#20Unfunded OPEB Liabilities and Funded Status by Plan (Dollars in Thousands) V Virginia Retirement RS System 20 Unfunded OPEB Liabilities and Funded Status by Plan 2022 2023 System UAAL based on AVA (Dollars in Thousands) Funded Status UAAL based on AVA (Dollars in Thousands) Funded Status Group Life HIC State HIC Teachers VSDP $ SSSS $ 1,349,005 63.9% $ 1,357,720 66.2% $ 802,184 21.8% $ 1,237,047 15.1% (291,190) 198.6% SSS) $ 797,401 26.2% $ 1,196,302 18.1% $ (316,522) 202.2%#21V Virginia RS Retirement System Return-to-Work#2222 Fiduciary Responsibility VRS has a fiduciary responsibility to: RS Virginia Retirement System Ensure funds are available to pay future benefits Comply with the Code of Virginia IRS Follow IRS rules such as prohibiting prearranged employment and requiring a break-in-service, along with other rules#2323 Return-to-Work (RTW) Program Retirees can return to work in part-time positions not covered by VRS benefits. RS No more than 80% of the hours of a full-time position One-month break-in-service if employee returns to same employer Retirees can return to work in critical shortage positions. Retiree may work full-time Virginia Retirement System Positions designated by the Department of Education or a school division based on certain criteria Critical shortage positions reassessed every school year Retired law enforcement officers can return to work full time as school security officers and continue to receive a monthly retirement benefit.#2424 Critical Shortage Positions (July 1, 2023) RS Virginia Retirement System 00 12 6 Break-in-service requirements for critical shortage positions and retiree school security officers set to six months from 12 months. Specialized student support critical shortage positions added. Employers report critical shortage employees to VRS annually and make contributions to cover the cost of these positions.#2525 Return-to-Work Studies December 11, 200 RS Virginia Retirement System Return to Work Provisions Governing VRS Retirees Item 498, Chapter 2 of the 2022 Special Session I Acts of Assembly Return to Work for Law-Enforcement Officers Retired from VRS Chapter 722 of the 2023 Acts of Assembly Return to Work Provisions for Certain Retirees to Work in Temporary Positions Chapters: 100, 707 & 70% of the 3023 Ach of Assembly Vit System 2022 Appropriation Act: The full report is available at RD856 (Published 2022)- Return to Work Provisions Governing Virginia Retirement System (VRS) Retirees - December 2022. Nov. 2023 Report: VRS and DCJS, with JLARC, reviewed and analyzed options for allowing law enforcement officers to return to work after retirement while continuing to receive a retirement benefit. RD578- Return to Work for Law- Enforcement Officers Retired from VRS- Ch. 722 of the 2023 Acts of Assembly- November 1, 2023 report Nov. 2023 Report: VRS reviewed options for allowing persons to return- to-work in certain temporary positions during a break in service. RD577- Return to Work Provisions for Certain Retirees to Work in Temporary Positions- Ch. 690, 707, and 708 of the 2023 Acts of Assembly- November 1, 2023#26V Virginia RS Retirement System Line of Duty Act#27Line of Duty Act Administration 27 V Virginia Retirement RS System dhrm Virginia Department of HUMAN RESOURCE MANAGEMENT LO DA VIRGINIA VALOR STATE SERVICE POLIC RS Virginia Retirement System Virginia State Police A partnership of VRS, VSP and DHRM#2828 Who is Eligible? Virginia Retirement RS System Eligible employees of state agencies and local governments, including certain volunteers, may receive LODA benefits.* Law enforcement officers Members of recognized fire companies and rescue squads ■ Virginia National Guard Correctional officers ■ Regional jail officers and superintendents * List not all-inclusive.#2929 Death Payments Death In the Line of Duty (i.e., firefighter dies while fighting a fire) Presumption (i.e., state trooper suffers a heart attack while working or on a day off and dies) Virginia Retirement RS System One-time death benefit payment to the beneficiary, as follows: $100,000 when a death occurs as the direct or proximate result of performing duty as of January 1, 2006, or after. $25,000 when the cause of death is attributed to one of the applicable presumptions and occurred earlier than five years after the retirement date. An additional $20,000 benefit is payable when certain members of the National Guard and U.S. military reserves are killed in action in any armed conflict on or after October 7, 2001.#3030 LODA Health Benefits Disability Death ☐ RS Virginia Retirement System The LODA Health Benefits Plans, administered by the Department of Human Resource Management (DHRM), are premium free for eligible individuals. In the case of a LODA disability, the participant, eligible spouse and eligible family members may enroll in the plans. In the case of a LODA death, eligible spouse and eligible family members may enroll.#3131 LODA Fund Population and Premium RS Virginia Retirement System FY 2024 FY 2025/2026 $995.00 Employer Contribution Rate $830.00 Participating Employer LODA-Eligible Population June 20, 2023 Participant Types Population Full-time Employees 16,075 Part-time Employees 837 Volunteers 1,952 National Guard 7,613 TOTAL Population 26,477#32V Virginia RS Retirement System JRS Overview MONG#3333 JRS Plan - Replacement Ratios Observations RS Virginia Retirement System Younger appointees have adequate time to accumulate defined contribution component that potentially exceeds Plan 1 or Plan 2 replacement ratios. Members hired after age 55 have shorter period of time for defined contribution balances to accumulate, therefore providing slightly less value from defined contribution component. Options exist to modify plan design for judges appointed on or after age 55 to provide them with Replacement Ratio similar to Plan 1 or Plan 2: Increase matching contributions to 100% Increase benefit multiplier from 1.0 to 1.1 Increase service weighting from 2.5 to 2.75%#3434 Replacement Ratios Current Benefit Tiers compared to SB 396 V Virginia Retirement RS System 110.0% 90.0% 70.0% 50.0% 30.0% 10.0% VRS - Judges Retirement Plan Replacement Ratios Age at appointment 55 Retirement age 73 98.2% to 103.0% Depending on Asssumed Investment Returns 66.7% to 71.5% Depending on 76.5% 74.3% Asssumed Investment Returns 71.5% 51.2% 82.7% 103.0% Plan 1 Plan 2 Hybrid - Min Hybrid - Max Hybrid - Min SB 396 Hybrid - Max SB 396 -10.0% Defined Benefit Plan Hybrid DC 5% Return Hybrid DC 6% Return Hybrid DC 7% Return#3535 Replacement Ratios Current Benefit Tiers compared Alternative Designs V Virginia Retirement RS System 100.0% VRS - Judges Retirement Plan Replacement Ratios Age at appointment 55 Current Plan Designs 76.5% 80.0% 74.3% 71.5% 60.0% 40.0% 20.0% Retirement age 73 Alternative Hybrid Plan Designs 103.0% 76.1% 76.0% 76.0% 0.0% Plan 1 Plan 2 Current Hybrid Max SB 396 100% Match Increase Benefit Multiplier to 1.1% Increase Service Weighting to 2.75% Defined Benefit Plan Hybrid DC 5% Return Hybrid DC 6% Return Hybrid DC 7% Return All hybrid plan replacement ratios shown above assume the member is making the full voluntary contribution. As of June 30, 2023, 83% of hybrid plan Judges make the maximum 4% voluntary contribution.#3636 JRS Plan Design Alternatives Cost Estimates Annual Cost Impact $4,500,000 $4,000,000 $3,500,000 $3,000,000 V Virginia Retirement RS System JRS Plan Design Alternative Annual Cost Increase Estimates Estimated Increase in Annual Cost of $4 Million based on current population. Expected to increase further as current judges are re-appointed after turning age 55. $2,500,000 $2,000,000 $1,500,000 $1,000,000 No Impact to Defined Benefit Plan Liability, Extra $1 million per year Estimated cost of $1.6 million per year would be less than Plan 2 but more than Increasing Match $500,000 S- Increase Match to 100% Change Benefit Multiplier or Service Weighting Alternative Plan Designs SB 396 Note that both increasing benefit multiplier or service weighting also increases employer risk, which had been reduced by the structure of the hybrid.#3737 Summary of JRS Possible Changes RS Virginia Retirement System Increasing the employer match to members of the Hybrid Retirement Plan for judges beyond the current match may be a consideration. This change: • • • Helps meet the objective of attracting judges by providing a comparable benefit to Plan 1 and Plan 2. Presents no increase in employer risk. Provides no additional unfunded liability to the plan. Allows members to continue investing in their defined contribution plan. Maintains the current three plans for judges, reducing additional complexity.#38V Virginia RS Retirement System Summary SIC SEMPER VIRGINIA TYR ANNIS#3939 Summary KI RS Virginia Retirement System Hybrid Retirement Plan is the largest active member plan. • • Creates a shared risk model between employer and employee. Lowered employer benefit plan costs. Contribution rates continue to remain fairly stable. Recent infusions and maintaining higher contribution rates have improved plan health and generated long-term savings. Meaningful positive steps taken, but unfunded liabilities remain. Any new plan design changes or benefit enhancements require careful consideration with respect to increasing liabilities and funding requirements.#40V Virginia RS Retirement System Helping members plan for tomorrow, today#41V Virginia RS Retirement System 2024 Legislation 3 ** (+ & 3 xxx 4 な 50 4 + X 4#4242 2024 VRS-Related Bills VRS Bill Number Patron HB 70 Bulova SB 458 Marsden RS Virginia Retirement System Description Allows purchase of prior full-time active-duty military service for members of any branch of the armed services established by the federal government (Space Force). Allows VRS to escheat DC plan accounts to Treasury.#4343 2024 VRS-Related Bills RS Virginia Retirement System Enhanced Benefits - Local Bill Number Patron HB 38 Clark HB 300 Ballard HB 630 Cherry SB 328 Jordan SB 472 Obenshain HB 231 Campbell HB 1438 Wiley SB 218 Locke Description Makes local 911 dispatchers eligible to receive hazardous duty benefits upon local election; only applies to service after July 1, 2025; allows localities to also choose whether to provide the benefits for prior dispatcher service. Makes local animal control officers eligible to receive hazardous duty benefits upon local election; only applies to service after July 1, 2025. Makes juvenile detention specialists eligible to receive hazardous duty benefits upon local election. Makes local animal control officers and municipal park rangers eligible to receive hazardous duty benefits upon local election; only applies to service after July 1, 2025.#4444 2024 VRS-Related Bills Enhanced Benefits - VaLORS Bill Number Patron HB 631 Cherry HB 891 HB 1312 Kent Orrock HB 675 Runion HB 1401 Clark RS Virginia Retirement System Description Adds VSP and other state law-enforcement agency 911 dispatchers to VaLORS for service after July 1, 2025. Adds Department of Conservation and Recreation conservation officers to VaLORS. Permits the Virginia School for the Deaf and the Blind to have a campus police department. Adds a new employer with existing VRS members to VALORS if VSDB establishes a campus police department (they do have campus police staff). Adds full-time firefighters employed by the Department of Military Affairs to VaLORS for service earned after July 1, 2025.#4545 2024 VRS-Related Bills RS System Virginia Retirement Enhanced Benefits - General Bill Number Patron SB 130 Craig Description Eliminates the end date for the HD supplement available to eligible members of VaLORS, SPORS, or for local enhanced benefits. Line of Duty Act Bill Number Patron HB 232 HB 751 SB 466 Campbell Walker Obenshain McQuinn HB 321 SB 649 Salim HB 1433 Hodges Description Allows private institutions of higher education to opt to participate in LODA for its campus police officers and allows private police departments to opt to participate in LODA for its private police officers. Increases the LODA death benefit from $25,000 to $100,000 for death caused by occupational cancer, respiratory disease, or hypertension or heart disease Provides that an eligible dependent includes a child that was born or adopted prior to the employee's claim approval date for purposes of an award of continued health insurance under LODA.#4646 2024 VRS-Related Bills Return-to-Work Bill Number Patron HB 99 HB 1393 Green Jones SB 548 Craig RS Virginia Retirement System Description Allows retired law-enforcement officers to return to work as a law-enforcement officer after six-month break in service; employer must pay contributions. One-month break in service for retirees to return to work as a teacher, school administrative employee, or school bus driver in a critical shortage position or as a law-enforcement officer; employer must pay contributions.#4747 2024 VRS-Related Bills Service Credit Bill Number Patron HB 687 SB 622 O'Quinn Pillion RS Virginia Retirement System Description Allows a full-time public school teacher who concurrently serves as a full-time school bus driver to receive additional VRS service credit for such services. Judicial Retirement System Bill Number SB 396 Patron Description Raises the retirement multiplier from 1% to 1.7% for McDougle persons appointed on or after July 1, 2025, as a judge if age 55 or older at time of appointment.#4848 2024 VRS-Related Bills Investments Bill Number Patron HB 388 Griffin SB 307 McPike Description Virginia Retirement RS System Prohibits VRS from making a social investment (an investment based on diversity, equity and inclusion criteria), unless it can demonstrate that the investment will provide a superior rate of return compared to a similar non-social investment. Primarily an electronic gaming device licensing bill.#4949 2024 VRS-Related Bills Data Reporting Bill Number Patron HB 655 SB 645 Coyner Aird HB 162 Reid RS Virginia Retirement System Description Requires the Auditor of Public Accounts to develop criteria for a preliminary determination that a locality may be in fiscal distress. Requires retirement systems to provide procurement disclosures for all services (or just investment services) provided to the system. Intended to impact school divisions regarding 403(b) plan providers.#5050 2024 VRS-Related Bills Workgroup/Study Bill Number Patron HB 133 SB 650 Convirs- Fowler Rouse HJ 53 HJ 56 SJ 9 Batten Cordoza Sturtevant RS Virginia Retirement System Description Creates the Emergency Response Toxic Exposure Grant Fund & Program and includes VRS in the work group to consider eligibility, qualifying emergencies, administration, and investments. Due November 1, 2024. JLARC study on effect of salaries, employment benefits and other relevant factors on recruiting and retaining teachers.