RD575 - Optional Retirement Plan for Higher Education – Review of Contribution Rates – November 2019

Executive Summary:

The Board of Trustees of the Virginia Retirement System (VRS) is required by § 51.1-126 of the Code of Virginia to review the contribution rates for the Optional Retirement Plan for Higher Education (ORPHE) at least once every six years. In order to facilitate the review, VRS staff collected data from the national peer institutions identified by the State Council of Higher Education for Virginia. For each of the peer institutions identified by SCHEV, the employer contribution data was collected to determine the peer group mean contribution rate for the fiscal year ending June 30, 2019. In addition to comparing the contribution rates with the peer group contribution rate mean, the ORPHE contribution rates were also used to estimate retirement benefits. Plan replacement ratios were calculated and compared to other VRS retirement plans as well as to SCHEV peer institutions. The VRS actuary, Cavanaugh Macdonald Consulting, LLC, reviewed the analysis for reasonableness.

The results of the analysis indicate that given the current ORPHE employer contribution rates, the benefit replacement ratio generated is in line with other VRS sponsored plans. Additionally, with a peer group mean employer contribution rate of 8.8%, the current 10.4% employer contribution rate for ORPHE Plan 1 members(with no required employee contribution) exceeds the peer group average while the 8.5% employer contribution rate for ORPHE Plan 2 members (with a required 5% employee contribution) closely aligns with the peer group average rate.