Yes, according to the most recent audit, Virginia’s pension funds are solidly on track to meet their financial obligations. The Virginia Retirement System’s 2025 annual report and a comprehensive four-year actuarial audit by the Virginia General Assembly’s Joint Legislative Audit and Review Commission (JLARC) confirm that both the state employee retirement plan (funded at 85.4%) and the teacher retirement plan (funded at 85.5%) as of June 30, 2025, are moving in the right direction. These aren’t speculative projections—they’re backed by actual investment returns and a growing asset base that reached $122.8 billion in fiscal year 2025, up $8.5 billion from the prior year.
For the roughly 800,000 current workers and retirees who depend on Virginia’s pension system, this news carries real weight. The audit process isn’t simply a checkbox exercise. The JLARC review examined whether VRS’ actuarial assumptions, funding methods, and contribution calculations were reasonable and sustainable. The finding that they are reasonable—combined with concrete improvements in asset values and funding ratios—suggests that current contribution levels and investment strategies are working as intended.
Table of Contents
- What Does the Latest Virginia Pension Audit Reveal?
- Funding Progress and the Path to Full Solvency
- Investment Portfolio Performance Driving the Improvement
- What These Results Mean for Virginia Workers and Retirees
- Audit Recommendations Point to Areas Needing Attention
- How Investment Returns Fund Two-Thirds of Benefit Payments
- Where Virginia Stands Among Other State Pension Systems
- Frequently Asked Questions
What Does the Latest Virginia Pension Audit Reveal?
The JLARC audit is a required, independent examination of Virginia’s pension system conducted every four years per state law. This year’s review, published in January 2026, focused on whether VRS was using sound actuarial practices and whether its funding strategy would deliver promised benefits to retirees. The auditors concluded that VRS’ actuarial assumptions, funding methods, and contribution calculations were reasonable and appropriate.
However, audits rarely give a completely clean bill of health. JLARC did recommend technical improvements in three specific areas: how the system calculates cost-of-living adjustments, the mortality assumptions used in projections, and certain funding parameters. These aren’t failures—they’re refinements that could make the system even more accurate and sustainable over the next few decades. It’s similar to how a well-maintained car might still benefit from a software update: the vehicle works, but the adjustment could improve efficiency.
Funding Progress and the Path to Full Solvency
At 85.4% funded for the state employee plan and 85.5% for the teacher plan, Virginia’s pension system is in far better shape than many state systems across the country. To understand why this matters, consider that a 70% funded ratio—common in states like Illinois and Connecticut—signals serious strain. Virginia’s position reflects decades of relatively consistent employer contributions and reasonable contribution levels from employees. The trajectory is equally important.
VRS projects that both plans will reach approximately 90% funding by 2030, with full funding expected by approximately 2043 under current actuarial assumptions. That 2043 timeline assumes continued investment returns, stable contribution rates, and no major demographic shifts. A limitation worth noting: these projections hinge on the assumption that investment returns will meet long-term expectations. If markets underperform significantly for several years, that timeline could extend. Conversely, better-than-expected returns could accelerate the date when the system becomes fully funded.
Investment Portfolio Performance Driving the Improvement
VRS’ investment portfolio grew by $8.5 billion during fiscal year 2025, reaching a total value of $122.8 billion. This substantial growth reflects a combination of new employer and employee contributions flowing into the system, as well as investment returns. For context, that $122.8 billion asset base supports benefit payments to roughly 300,000 retirees and is the foundation for future benefit promises to current workers. The scale of this portfolio matters because it funds future benefits.
In fact, investment earnings now cover nearly two-thirds of all retirement benefit payments made by VRS. This shift—where investment income rather than pure employee-employer contributions becomes the primary funding source—is a sign of a maturing pension system. It’s also why investment performance directly affects the system’s health. A few years of strong market returns can dramatically improve funding ratios, while sustained downturns can erode progress.
What These Results Mean for Virginia Workers and Retirees
For someone currently working in a state agency or teaching in Virginia’s public schools, the audit findings offer reassurance that their promised pension benefits are being funded responsibly. The improvements in the portfolio value and the reasonable actuarial assessment suggest that contribution rates don’t need dramatic increases—at least not in the near term. Current state employees contribute around 5% of salary, and teachers contribute approximately 6%, with employers contributing significantly more.
However, there’s a tradeoff that’s sometimes overlooked. While Virginia’s pension system is relatively healthy, some employers and state leaders argue that pension obligations consume budget resources that could go to other priorities—from teacher salaries to infrastructure. The fact that VRS benefits are generous means the system’s long-term sustainability depends on continued discipline in contribution rates and investment strategy. If the state tried to increase benefits without raising contributions, the timeline to full funding would slip considerably.
Audit Recommendations Point to Areas Needing Attention
While the audit gave VRS a thumbs-up on core funding practices, the recommended technical improvements deserve scrutiny. The suggestion to refine cost-of-living adjustment calculations is particularly important because Virginia has been providing COLA increases to retirees—a benefit that significantly boosts long-term liability. If COLA assumptions become too generous, they can undermine the funding timeline that projects full solvency by 2043. Similarly, refinements to mortality assumptions might seem like a narrow technical matter, but they’re not.
If retirees are living longer than the system’s models assume, benefit obligations grow. VRS uses actuarial mortality tables that project how long current retirees and future retirees are likely to live. As life expectancy increases, the cost of funding a pension benefit increases—because the system must pay for more years. These improvements suggested by JLARC are designed to keep the system’s models aligned with real-world outcomes.
How Investment Returns Fund Two-Thirds of Benefit Payments
The fact that investment earnings now cover nearly two-thirds of retirement benefit payments represents a significant shift in how VRS funds retirees. In the early years of the pension system, most benefits came from the combined contributions of employees and employers. Today, with a large asset base generating millions in annual returns, those investment earnings shoulder the bulk of the financial burden.
This creates both opportunity and vulnerability. Strong investment years—like the fiscal year 2025 that added $8.5 billion to the portfolio—can more than cover benefit payments with room left over to improve the funding ratio. Weak years, by contrast, require continued employer and employee contributions to fill any gap.
Where Virginia Stands Among Other State Pension Systems
Virginia’s roughly 85% funding ratio places it in the middle-to-better range compared to other large state pension systems. States like Florida and South Dakota have higher funding levels, while states like Illinois, Connecticut, and New Jersey have significantly lower ratios—some approaching or below 50%.
This context is important because it shows Virginia has made deliberate choices about contribution rates and investment strategy that have paid off. The audit’s confirmation that VRS is meeting its financial goals doesn’t mean complacency is warranted. The path to full funding by 2043 still requires discipline: stable employer contributions, employee contributions, market returns that meet expectations, and the technical refinements recommended by JLARC.
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Frequently Asked Questions
What does it mean for a pension system to be “85% funded”?
A pension fund’s funding ratio measures what percentage of future obligations are covered by current assets and projected investment returns. At 85% funded, Virginia’s pension system has assets covering 85% of its promised benefits; the remaining 15% will be funded through future contributions and investment returns by the target full-funding date of 2043.
When will Virginia’s pension plans be fully funded?
VRS projects both the state employee and teacher retirement plans will reach approximately 90% funding by 2030 and full funding by approximately 2043, under current actuarial assumptions. That timeline assumes continued investment returns matching long-term expectations and stable contribution rates.
What did the JLARC audit examine?
The Virginia General Assembly’s Joint Legislative Audit and Review Commission is required by state law to review the VRS actuarial assumptions, funding methods, and contribution calculations every four years. The 2025 audit confirmed these practices were reasonable and recommended technical improvements to cost-of-living adjustment calculations, mortality assumptions, and certain funding parameters.
How much do employees and employers contribute to VRS?
Current state employees contribute approximately 5% of their salary, while teachers contribute around 6%. Employers contribute significantly higher amounts, which varies depending on the plan and actuarial experience. The specific rates change annually based on funding status and actuarial valuations.
If investment returns don’t meet expectations, could the funding timeline slip?
Yes. VRS projections assume investment returns will average around 6.5-7% annually. If markets underperform significantly for several years, it could extend the date when the system reaches full funding. Conversely, better-than-expected returns could accelerate full funding. —