Employer Update

The past fiscal year saw modest improvements in the funded status of the five statewide pension plans (state, teachers, SPORS, JRS and VaLORS) and other post-employment benefit (OPEB) plans, according to the 2024 informational valuation prepared by Gabriel, Roeder, Smith & Company (GRS), the VRS plan actuary.

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.

• Even-year valuations (2024) are conducted for informational purposes only. They provide insight into demographic trends as well as an early indication of the magnitude and direction of potential changes to contribution rates.
• Odd-year valuations (2025) are used to set employer contribution rates for the next two-year budget cycle.

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 for investment returns, plan demographics, benefits and expenses to establish contribution rates.
• Over the long term, actual investment returns, along with the actual cost of benefits and expenses, determine employer costs and associated contribution rates. State law requires defined benefit employer contribution rates to remain relatively level from year to year.

FY 2024 Valuation Highlights

1. VRS outperformed its assumed rate of return.
VRS posted a 9.9% return on its investment portfolio for FY 2024, exceeding the 6.75% assumed rate of return. Investment gains help moderate future contribution rates and gradually improve the actuarial value of assets over the ensuing years.

2. Salary increases and higher-than-anticipated COLAs nearly offset FY 2024 investment gains.
Employee raises significantly outpaced actuarial assumptions across all statewide plans. Higher-than-expected inflation triggered cost-of-living adjustments (COLAs) for retirees that exceeded actuarial assumptions over the last three years.

3. Headcounts increased in every plan except the Virginia Law Officers’ Retirement System (VaLORS).
The state and teacher plans saw the largest increases in active membership. Higher education institutions filled more positions and new state agencies came online, leading to a 4.1% increase in the state plan headcount overall. In the previous five years, plan membership had increased by only an average of 0.62% per year.

The teacher plan added 3,400 members for a 2.2% increase. Over the five prior years, active plan membership had increased by an average of just 0.21% annually.

The population decrease in VaLORS for VRS purposes is mainly attributed to staff reductions in the Department of Corrections, such as the closing of facilities in Augusta and Sussex as well as staff decreases at other facilities.

4. VRS made modest progress in reducing unfunded liabilities. Yet, most OPEB programs remain significantly underfunded.
Funded status continues to trend upward for all plans, with the state and teacher pension plans reaching 80% on an actuarial value of assets basis in FY 2024.

The group life insurance program’s funded status increased to 70%. The Virginia Sickness & Disability Program remains overfunded with a 200% funded status due in part to a plan design and experience.

Although the funded status for the health insurance credit programs for state employees and teachers incrementally improved, both programs remain underfunded at less than 40% for state employees and under 30% for teachers.

Review the full valuation presentationto the VRS Board of Trustees.

Looking Ahead

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

Next spring: VRS will conduct an experience study. The study will analyze historical plan data to evaluate the actual experience of the plans against the assumptions used to calculate the plan's liabilities and funded status. This will determine whether the actuarial assumptions currently in use have adequately anticipated the actual plan experience and if any adjustments need to be made for the future. State law requires VRS to conduct experience studies every four years. The coming study will cover the four-year period from July 1, 2020, through June 30, 2024.