RD399 - Virginia College Savings Plan Annual Report for the Period Ended June 30, 2010 and Actuarial Valuation of the Virginia Prepaid Education Program as of June 30, 2010


Executive Summary:
*This report was replaced in its entirey by the Virginia College Savings Plan Board on January 10, 2011.

The Virginia College Savings Plan’s (Plan) annual report for the year ended June 30, 2010 contains the required financial statements and notes thereto prepared in accordance with generally accepted accounting principles, and management’s discussion and analysis, which is required supplemental information under the Governmental Accounting Standards Board reporting model. The financial statements and notes should be read in their entirety.

The Plan operates the Commonwealth’s Internal Revenue Code Section 529 qualified tuition program, which offers four options, the Virginia Prepaid Education Program (VPEP), the Virginia Education Savings Trust (VEST), CollegeAmerica and CollegeWealth. VPEP is considered a defined benefit program which offers contracts, at actuarially determined prices, that provide full future tuition and mandatory fee payments at the Commonwealth’s public higher education institutions and differing payouts at private or out-of-state institutions. Annually, the Plan’s actuary determines the actuarial soundness of VPEP. As of June 30, 2010, VPEP was 90.1% funded according to the actuarial report. Key factors used in the soundness analysis include anticipated tuition increases (both short- and long-term) as well as anticipated investment performance.

VEST is a defined contribution program, which allows participants to make contributions into their selected investment portfolio(s). VEST accounts are subject to market investment risks, including the possible loss of principal. CollegeAmerica and CollegeWealth are also defined contribution savings programs. CollegeAmerica, a broker-sold program, offered 23 different American Funds mutual fund products as investment options. CollegeAmerica participants bear all market risk for their investment, including the potential loss of principal. The American Funds acts as program manager for CollegeAmerica and provides all back office and operational services for the program. CollegeWealth participants invest in FDIC-insured savings products offered through participating banks.

Beginning with fiscal year 2010, the enterprise fund Statement of Net Assets and the Statement of Revenues, Expenses, and Changes in Net Assets present the Plan’s operating component in a separate column. This change in financial reporting presentation improves the transparency in reporting the Plan’s operating revenue and expenses. In previous fiscal years, VEST, CollegeAmerica and CollegeWealth were reported in separate columns in the private-purpose trust funds statements. Beginning with fiscal year 2010, CollegeAmerica and CollegeWealth are no longer included in the fiduciary fund financial statements but are presented as supplemental information. Removing CollegeAmerica and CollegeWealth from the fiduciary fund financial statements better reflects the Plan’s role and duties with regard to those programs.

The Plan holds, invests and distributes monies held in trust for program participants. The Plan invests its funds pursuant to statute and Investment Guidelines under the direction of its Board and Investment Advisory Committee in a mix of equity and fixed income investments. During fiscal year 2010, the Board adopted revised Investment Policies and Guidelines for both VPEP and VEST. The Plan, working with the Investment Advisory Committee and Board, also began the transition process to the new target asset allocation in VPEP that was adopted in June 2009.

During the fiscal year 2010, the equity markets continued to experience tremendous volatility but ended the year up from the prior year despite a decline in the last quarter of the year. For example, the United States domestic equity market as measured by the Standard & Poor’s 500 Index ended the year up 14.4 percent from June 30, 2009 but was down 11.4 percent for the quarter ended June 30, 2010. The international equity markets also declined during the last quarter as measured by the MSCI EAFE Index declining 13.7 percent. The fixed income markets also fared well during the year and were more consistent as demonstrated by the Barclays Capital US Aggregate Bond Index returning 9.5 percent for the year ended June 30, 2010. In aggregate, market movements had a positive effect on fixed income and equity security prices in the VPEP and VEST portfolios for the fiscal year ended June 30, 2010.

• VPEP’s actual return on investments for the fiscal year ended June 30, 2010 was 17.7 percent on a time-weighted and 17.9 percent on a dollar weighted basis reflecting the strong equity and fixed income market performance during most of the fiscal year.

• VPEP’s total net assets increased by $76.6 million to an actuarially determined deficit of $207.4 million from a deficit of $284.0 million in the prior year, which was primarily due to significant gains in the investment portfolio offset somewhat by higher than expected tuition increases and increases in the future tuition growth assumptions.

• VEST net assets held in trust for program participants increased by $302 million or about 28.6 percent due to more favorable market conditions than in the prior year.

• Both VPEP and VEST applicants continued to increase utilization of on-line applications with nearly 83 percent of applications being filed on-line.