RD31 - Annual Report - Oversight VRS Biennial Status and Semi-Annual Investment Report, December 2004


Executive Summary:
In 1993, House Joint Resolution 392 directed the Joint Legislative Audit and Review Commission (JLARC) to complete a comprehensive study of the Virginia Retirement System. The study focused on the structure and governance of the system, investment practices and performance, and the actuarial soundness of the retirement funds. In January 1994 JLARC issued the report, Review of the Virginia Retirement System. Overall, the JLARC staff and consultants found the Virginia Retirement System to be financially sound and the system assets to be well managed. However, concerns about the governance of the system were well founded and the report recommended several actions to strengthen the independence of the retirement system.

The report recommended that the VRS be established as an agency independent of the executive branch, and that the appointment of trustees should be the shared responsibility of the Governor and the General Assembly. The report also recommended that the VRS trust funds be established as independent trusts in the Constitution of Virginia. In addition, the structure of the advisory committees should be established in law. It was recommended that the General Assembly establish permanent oversight of the retirement system. In addition, the actuarial consultant, hired by JLARC, found that the pay-as-you-go funding of the cost of living adjustments could cause future increases in contribution rates. Accordingly, the report recommended that the General Assembly address this issue.

Ten years have passed since the 1994 report and most of the recommendations in the 1994 report have been implemented (see Appendix table). This issue of the Biennial Status and Semi-Annual Investment Report, required by the Virginia Retirement System Oversight Act (Section 30-78 et seq. of the Code of Virginia), gives an overview of the major developments at the VRS over the course of the past ten years. This report includes both the semi-annual investment report for December 2004 and the fourth biennial status report. The first section of this report provides an overview of VRS. The second section addresses the investment program. Subsequent sections of this report focus on the administrative aspects of VRS’ program, including benefit changes and enhancements, technology, actuarial soundness of the fund, and an upcoming leadership change at VRS.