Employer Update

The proposed FY 2023-24 budget includes provisions aimed at reducing the unfunded liabilities for the state-wide retirement plans as well as the state’s other post-employment benefit plans.

The proposed budget, pending action by the General Assembly and administration, calls for:

• Maintaining the employer contribution rates for the state and teacher retirement plans at current, FY 2022 levels.
• Making a one-time deposit of approximately $924 million into the VRS trust fund, to be applied to all state-level retirement and OPEB plans. The cash infusion would create an estimated cost savings of $1.7 billion over the next 20 years.

The one-time cash infusion, contingent on meeting the revenue forecast for fiscal year 2022, is intended to increase the funded status for each of the state-wide plans by 1% and reduce interest payments on unfunded liabilities over the long term.

Approximately 88% of the cash infusion would be split between the teacher and state retirement plans.

• The teacher retirement plan would receive $545 million.
• The state retirement plan would receive $270 million.
• An additional $109 million would go to the State Police Officers’ Retirement System (SPORS), the Virginia Law Officers’ Retirement System (VaLORS), the Judicial Retirement System (JRS) and the state’s group life insurance and health insurance credit plans.

The added cash to the teacher retirement plan, for example, would save about $1 billion in future interest payments on the outstanding legacy unfunded liability and could potentially lower teacher contribution rates by approximately 0.40% of covered payroll in future years.

As of June 30, 2021, the teacher plan was 77.2% funded on actuarial basis, with $12 billion in unfunded liability using actuarial assets.

Keeping the contribution rates at current levels for the state and teacher retirement plans would further reduce the unfunded liabilities for those plans.

For example, the current rates would collect an additional $345 million for the teacher plan over the next biennium, which could:

• Increase the funded status by nearly 70 basis points (0.70%).
• Lower unfunded liabilities by nearly $382 million without increasing the budget.

The introduced budget also fully funds the VRS board-certified rates for SPORS, VaLORS, JRS and the OPEB plans (group life, health insurance credit and the Virginia Sickness and Disability Program).

Final contribution rates will be available at the conclusion of the General Assembly session.