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Actuarial audit finds Commonwealth Savers' defined-benefit 529 program "actuarially sound" with large surplus; board weighs options
Summary
A quadrennial actuarial audit by GRS validated Commonwealth Savers' June 30, 2024 valuation: the defined-benefit 529 program showed a funded ratio near 193% and an actuarial surplus of about $1.2 billion; GRS projected the surplus may grow and recommended minor disclosure and data-cleanup steps; the General Assembly has a subcommittee to examine potential uses for the surplus.
GRS, an independent actuarial firm, validated the June 30, 2024 actuarial valuation of Commonwealth Savers' defined-benefit 529 program and concluded the program is actuarially sound.
"The Defined Benefit 529 program is actuarially sound," Amy Williams of GRS told commissioners. She said the program had about $2.5 billion in assets and about $1.3 billion in obligations on the valuation date, producing an actuarial surplus of roughly $1.2 billion and a funded ratio of about 192.8%. GRS projected, under the contracts in force as of the valuation date and assuming current actuarial assumptions hold, an expected surplus of about $5.8 billion by fiscal year 2053.
GRS said the valuation's key actuarial assumptions (a 5.75% investment-return assumption and tuition-inflation assumptions of 4% for university contracts and 3% for community colleges for 2025'1 and 6% thereafter) were reasonable and somewhat conservative for this product type. The audit replicated valuation calculations with a high degree of accuracy and made minor recommendations to improve disclosures, contract-data presentation and sensitivity analysis.
Mary Morris, chief executive officer of Commonwealth Savers, called the audit "clean" with only minor recommendations and said the board has been considering how to prudently use the surplus while protecting beneficiaries and the Commonwealth. Morris noted the General Assembly included language this session creating a joint subcommittee of House Appropriations and Senate Finance to review JLARC's 2022 study and recommend how to use surplus funds; that subcommittee is expected to report later this year.
Morris also reviewed other Commonwealth Savers programs: she said Invest 529 manages about $10 billion in the direct-sold savings program with roughly 900,000 accounts and about 550,000 Virginia account owners; the tuition track portfolio (TTP) is growing and includes about 12,000 accounts and roughly $150 million in assets; Commonwealth Savers' ABLE program will expand eligibility because of a federal ABLE Age Adjustment Act effective 01/01/2026; and Retire Path Virginia, a state-facilitated workplace retirement program launched in 2023, has enrolled more than 16,000 workers but remains limited to employers meeting statutory thresholds.
Commissioners asked GRS about the reasonableness of the 5.75% return assumption; Williams said that assumption is reasonable for the DB 529 program and that prepaid-tuition plans often use slightly lower assumptions than retirement systems. GRS recommended ongoing review of assumptions and an experience study within five years.
Commonwealth Savers staff said they will provide JLARC with a completed report responding to JLARC's 2018 recommendations on the legacy prepaid program and continue work with the legislative subcommittee on surplus-use options.
