Virginia Retirement System trust fund hits record high

Those unfunded liabilities also reflect consistent past state underfunding of its share of retirement costs for state employees, teachers and others. Passage of sweeping reforms in 2012 required the state to begin repaying pension liabilities it had left unfunded to protect the state budget during the recession.

“VRS focuses on long-term returns and adheres to the Code of Virginia requirement to minimize the risk of large losses,” spokesperson Jeanne Chenault said in response to Burton’s recent comments. “To achieve this, VRS invests in a very diversified portfolio across a number of different asset classes and strategies, not just U.S. stocks and bonds, as implied by the 60/40 portfolio mix.”

“This diversification limits VRS’ exposure and risk to a single asset or strategy,” she said.

Chenault noted that VRS, in a down market two years ago, earned a 0.6% return on its investments, but would have lost more than 10% if it had invested retirement assets in a 60/40 portfolio of index funds.

“While picking any single year for illustrative purposes may help demonstrate overall market impacts, be it 2022 or 2024, what matters most from a portfolio perspective are long-term results,” she said.

This year, public equities generated the highest return on VRS investments at 20.1%, followed by credit strategies at 11.7%, a separate class of diversifying strategies at 9.7% and private investment partnerships at 8.2% – all above the long-term assumed annual rate of return of 6.75%. Investments in credit strategies lost 3.2%, while both fixed income and private equity returns lagged at 3.8% and 5.8%, respectively.

Investment income pays for about two-thirds of the pension liabilities for retirees, with the rest coming from contributions made by employees and their government employers. VRS currently serves more than 240,000 retirees and almost 369,000 active employees, including 161,524 teachers, and about 216,000 inactive members who have contributed to the system.

Since the recession, the General Assembly and four governors (two from each party) have diverted available state money into the system to reduce liabilities and increase the funded status of pension plans for state employees and teachers, which now both exceed 80%. For example, the last two-year budget included a $1 billion state deposit that VRS estimates will save the system $2 billion over the next 20 years.

Secretary of Finance Steve Cummings told lawmakers this week that the health of the VRS trust fund contributes to the long-term stability of state finances.

“The balance sheet could not be stronger because we’ve invested in so many things that reduce future liability,” Cummings told the assembly money committees on Wednesday.