RD397 - Virginia College Savings Plan Annual Report for the Period Ended June 30, 2011 and Actuarial Valuation of the Virginia Prepaid Education Program as of June 30, 2011


Executive Summary:
*This report was replaced in its entirety by the Virginia College Savings Plan Board on January 4, 2012.

The Virginia College Savings Plan’s (Plan) annual report for the year ended June 30, 2011 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 (IRC) Section 529 qualified tuition plan, which offers four programs, the Virginia Prepaid Education Program (VPEPSM), the Virginia Education Savings Trust (VESTSM), CollegeAmerica® and CollegeWealth®. VPEP is considered a defined benefit program which offers contracts, at actuarially determined prices, that provide the future payment of undergraduate tuition for the normal full-time course load for students enrolled in a general course of study at any Virginia public higher educational institution and all mandatory fees required as a condition of enrollment of all students 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, 2011, VPEP was 100.5% funded according to the actuarial report. Key factors used in the actuarial 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 25 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 two participating banks.

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, fixed income and alternative investments. During the fiscal year ended June 30, 2011, the equity and fixed income markets performed well. For example, the United States domestic equity market, as measured by the Standard & Poor’s 500 Index, ended the year up 30.7 percent from June 30, 2010. The international equity markets also performed well during the year, as measured by the MSCI EAFE Index, up 30.9 percent. The fixed income markets also provided consistent performance as demonstrated by the Barclays Capital US Aggregate Bond Index returning 3.9 percent for the year ended June 30, 2011.

In aggregate, market movements had a positive effect on fixed income and equity security prices in the VPEP, VEST and CollegeAmerica portfolios for the fiscal year ended June 30, 2011.

• Total VPEP cash, cash equivalents, and investments held in trust for program participants increased by $343.7 million, or about 21.3 percent from fiscal year-end 2010, due to strong capital markets performance.

• VPEP’s actual return on investments for the fiscal year ended June 30, 2011 was 19.0 percent on both a time-weighted and dollar-weighted basis reflecting the strong equity and fixed income market performance during most of the fiscal year.

• The Enterprise Fund’s net assets increased by $215.9 million to an actuarially determined surplus of $10.2 million from a deficit of $205.7 million in the prior year, which was primarily due to significant gains in the investment portfolio and lower than expected tuition increases offset by increases in the future tuition growth assumptions.

• VPEP’s actuarially determined tuition benefits payable liability increased by $119.3 million, or approximately 5.7 percent, which was primarily due to the increases in the future tuition growth assumptions and the additional obligation of 3,618 new contracts opened during the 2010 – 2011 enrollment period.

• VEST net assets held in trust for program participants increased by $427.4 million or about 31.5 percent due to growth in accounts and strong capital markets performance.

• Both VPEP and VEST applicants continued to increase utilization of on-line applications with more than 83 and 87 percent, respectively, of applications being filed on-line.

• Distributions as measured by dollars and number of transactions, continued to increase for both VPEP and VEST as participants utilized their college savings accounts. In addition the Plan continued to experience positive growth in accounts, particularly in VEST.