The Virginia Retirement System has about 80 percent of the current state employees’ pensions in the bank — some $49 billion in assets — according to officials at Monday’s meeting of the Joint Legislative Audit and Review Commission.
Despite an increase in inflation and a decrease in the gross national product, officials say they believe the system will still see an average 7.5 percent rate of return annually over the next five to 10 years.
The rate of return for the 12 months from September 2004 through September 2005 was 16.6 percent.
Fiscal 2006 was a good year and “hopefully” 2007 will be as strong, said Bob Schultze, VRS director. The General Assembly also increased the amount of employer contributions in the recently passed budget.
“If those are sustained again in the budget two years beyond this one, then we are predicting we will be at 87.5 percent instead of 80 percent,” Schultze said.
The 80 percent funding level is “in the middle” when compared to other state pension systems, said StephenMcElhaney, a principal with Mercer Human Resource Consulting. McElhaney said the 7.5 percent annual increase “is a reasonable projection in the long-term.”
“I think Virginia has always been responsible in the way it approaches pensions. Virginia has a history of funding the required [5 percent] contributions each year,” he said.
Schultze credited VRS’ funding plan to the small percentage of the state’s capital in alternative investments, such as privately funding capital venture firms.
As a mature system, VRS is paying out more benefits than it is taking in as contributions, said Trish Bishop, a JLARC auditor. The difference is covered by those investments.
“They predict, with their sources of revenue, you’d have enough in your investment revenue to cover what you expect to pay in benefits over the next 10 years,” Bishop said.
