RD575 - Virginia529 Annual Report for the Period Ended on June 30, 2016


Executive Summary:
*This report was replaced in its entirety by the Virginia College Savings Plan Board on January 16, 2017.

The Virginia College Savings Plan’s (VA529) annual report for the year ended June 30, 2016 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 supplementary information under the Governmental Accounting Standards Board reporting model. The report also includes a letter of transmittal and should be read in its entirety.

VA529 operates the Commonwealth’s Internal Revenue Code (IRC) Section 529 qualified tuition plan, which offers four programs, the Virginia529 prePAID?M (prePAID), Virginia529 inVEST? (inVEST), CollegeAmerica® and CollegeWealth®. prePAID is a defined benefit program which offers contracts at actuarially determined prices. prePAID provides the future payment of undergraduate tuition for the normal full?time course load for all students enrolled in a general course of study at any Virginia public higher education institution and all mandatory fees required as a condition of enrollment of all students. Payouts differ at private or out?of?state institutions. Annually, VA529’s actuary determines the actuarial soundness of prePAID. As of June 30, 2016, prePAID was 129 percent funded according to the actuarial report. inVEST is a defined contribution savings program, which allows participants to make contributions into their selected investment portfolio(s). inVEST 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, offers 43 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 Capital Group (American Funds) acts as program manager for CollegeAmerica. CollegeWealth participants invest in FDIC?insured savings products offered through two participating banks, BB&T and Union Bank & Trust.

VA529 holds, invests and distributes monies on behalf of program participants. VA529 invests its funds pursuant to statute and Investment Policies and 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, 2016, market movements, in aggregate, had an overall net positive effect, albeit mixed, on the performance of the prePAID, inVEST and CollegeAmerica portfolios. prePAID’s actual return on investments for the fiscal year ended June 30, 2016 was 0.10 percent on a time?weighted basis.

VA529 continued to experience positive growth in accounts, particularly in inVEST and CollegeWealth, with approximately 13.7 percent and 17.5 percent gross account growth, respectively, during 2016. CollegeAmerica also experienced positive net account growth in 2016 at 2.7 percent.

VA529 continues to remain optimistic that its asset allocation and investment strategies will result in the prePAID portfolio meeting or exceeding performance expectations over the long?term. VA529 has assumed a long?term rate of return of 6.25 percent, reflecting the reductions in expected long?term global capital market returns. As of June 30, 2016, the total return since inception was about 6.1 percent net of fees and reflected prePAID’s 0.10 percent performance during fiscal 2016.

In assessing prePAID’s financial condition and in pricing prePAID contracts, VA529 has projected that tuition and fee increases at Virginia’s public higher education institutions will increase annually by approximately 5 percent for four?year and two?year institutions for Fall 2017 and 2018, and 6.5 percent thereafter. This long?term tuition and fee increase projection was reduced from 6.5 percent for the June 30, 2016 prePAID valuation and 2016?2017 enrollment period pricing. Changes in public education funding or changes in tuition models that result in tuition increases above VA529’s projections would have an immediate, detrimental impact on VA529’s outstanding long?term prePAID obligations. Similarly, changes in tuition and fee models at Virginia public higher education institutions that impact prePAID may have an adverse impact on program sustainability. However, with the statutory requirement that institutions provide updated, long?term tuition projections, VA529 remains in a position to be informed of future tuition and fee increases.