Employer Update

This past fiscal year saw improvements in the health of the five statewide pension plans and other post-employment benefit (OPEB) plans, according to 2022 informational valuations prepared by Gabriel, Roeder, Smith & Company (GRS), the VRS plan actuary.

• The funded status increased for retirement plans covering state employees, teachers, Virginia law officers and judges.
• The funded status held steady for the State Police Officers’ Retirement System (SPORS).
• The funded status of OPEB plans – group life insurance and the health insurance credit for state employees and teachers – increased.

Conducted annually at the close of the fiscal year (June 30), actuarial valuations examine plan performance and funded status and are used to develop funding requirements. In even-numbered years, informational valuations can provide insight into emerging trends in contribution rates. Odd-year valuations are used to set employer contribution rates for the next biennium.

Additional state funding reduced long-term liabilities. In June, the state contributed an additional $750 million to reduce the unfunded liabilities for VRS-administered retirement plans and other post-employment benefits. The 2023-2024 biennium budget also maintained higher employer contribution rates from the prior biennium for the state and teacher plans, which further reduced long-term unfunded liabilities.

Back-to-back positive investment returns improved overall funded status. Although the 2022 market value investment return of 0.6% for the total VRS trust fund fell short of the long-term assumed rate of return (6.75%), the funded status of the plans still improved. The increase can be attributed to actuarial smoothing of investment gains and losses of the previous five years and the outsized investment return in FY 2021 of 27.5%. The asset gains from excess returns in one year helps offset lower-than-expected returns in another.

Investment returns, along with employer and member contributions, fund VRS member benefits and cover plan administration expenses. In the near-term, VRS uses the actuarial assumptions about investment returns, benefits and expenses to determine contribution rates. Over the long term, actual investment returns, along with the actual cost of benefits and expenses, will determine employer contribution rates. State law requires defined benefit employer contribution rates to remain relatively level from year to year.

In December’s Employer Update: Look for a recap of informational valuations for the separately rated pension plans and the health insurance credit for political subdivisions as well as the Line of Duty Act Fund, the Virginia Sickness and Disability Program and the Virginia Local Disability Program.

See the contribution rates currently in effect for fiscal years 2023 and 2024.