RD675 - Virginia College Savings Plan Annual Report for the Period Ended on June 30, 2019

Executive Summary:

The Virginia College Savings Plan’s (VA529) annual report for the year ended June 30, 2019 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’s primary mission is twofold: first to assist families and others in achieving their higher education goals through three college savings programs, Prepaid529SM (Prepaid529), Invest529SM (Invest529), and CollegeAmerica®, and our early commitment scholarship program, SOAR Virginia®, as part of our statutory mandate to help make college more affordable and accessible; and second, to assist individuals with disabilities to save for qualified disability expenses without losing certain federal means-tested benefits through ABLEnow® and ABLEAmerica®, both ABLE disability savings programs.

Prepaid529 is a defined benefit program. Contracts in this program are based on 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 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 Prepaid529. As of June 30, 2019, Prepaid529 was 151.7 percent funded according to the actuarial report. Prepaid529 closed to new participants after its final enrollment period during fiscal 2019. VA529 will continue to service existing contracts and Prepaid529 will cover future tuition as defined in contracts.

Invest529 is a direct-sold defined contribution savings program, which allows participants to make contributions into their selected investment portfolio(s). Invest529 accounts are subject to market investment risks, including the possible loss of principal. CollegeAmerica, a broker-sold savings option, is also a defined contribution savings program that 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. ABLEnow and ABLEAmerica are direct-sold and broker-sold defined contribution savings plans, respectively, and serve as Virginia’s tax-advantaged ABLE savings programs for individuals with disabilities.

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. VA529 continues to remain optimistic that its asset allocation and investment strategies will result in the Prepaid529 portfolio meeting or exceeding performance expectations over the long-term. VA529 has assumed a long-term investment rate of return for the Prepaid529 portfolio of 5.75 percent. As of June 30, 2019, the total return since inception was about 6.18 percent net of fees and reflected Prepaid529’s lower than expected 4.92 percent overall performance during fiscal 2019.

VA529 experienced positive, yet varying account growth across all programs. Invest529 experienced 17.3 percent growth in accounts and added 49,038 new accounts during fiscal year 2019. CollegeAmerica experienced 0.9 percent positive net account growth during fiscal 2019. ABLEnow experienced 86 percent net account growth, ending fiscal 2019 with 6,135 open accounts.

In assessing Prepaid529’s financial condition, VA529 has projected that tuition and fee increases at Virginia’s public higher education institutions will increase annually by approximately 4.0 percent for the two academic years beginning Fall 2020 and Fall 2021, and 6.0 percent beginning Fall 2022 and thereafter. This applies to four-year universities, community colleges and two-year institutions. These long-term tuition and fee increase projections were established for the June 30, 2019 Prepaid529 valuation. Changes in public education funding that result in tuition increases above VA529’s projections would have an immediate, detrimental impact on VA529’s outstanding long-term Prepaid529 obligations. 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.