The Pension Plan for the State of Virginia is based on a defined benefit scheme for government workers. It also administers a life insurance cover and a deferred benefit compensation for the employees in the public sector. There is an illness and disability plan for the state employees and an optional pension plan for select members. Membership to the plan is open to full time paid employees in these categories:
- State Employees
- Employees of Political subdivisions and Local Government.
- Teachers and Administrative Employee of Virginia Schools
- Police Officers of the State
- Hazardous Duty Officers (Fire Department)
- Employees of the Judicial System
The management of the pension fund is done by the Board of Trustees of the Virginia Retirement System. The VRS Oversight Act (Section 30 of the Code of Virginia) authorizes the Joint Legislative Audit and Review Commission (JLARC) to audit the pension system. This Commission publishes the retirement system’s performance status report on a semi-annual basis.
Features of the State Employees Plan (VRS)
The Virginia Retirement System is based on a defined benefit scheme. The pension benefit is worked out on the age of the employee, the earned service credit and the final average compensation payable at the time of retirement. The pension benefit replaces almost half of the average highest earnings of the employee.
The employee contributes 5% of the salary every month into the pension account fund by means of a pre-tax reduction in the pay. The employer will also make a 5% contribution to the VRS fund
The employee becomes vested after putting in five years of service and earning equivalent credit. The employee becomes eligible for retirement after being vested after meeting the requirement for age as well as service for the pension plan.
Average Final Compensation
The average final salary compensation of an employee is worked out by taking an average of the highest three-year earning period in service.
Multiplier for Service Retirement
This multiplier is a calculation that establishes the amount of the average final salary compensation to get the pension benefit and this multiplier factor is currently 1.7%.
If the employee is eligible to qualify for claiming disability, the multiplier at the time of retirement will also be 1.7% on all the earned service credit and it will not matter when that credit was granted.
This is a retirement asset. A monetary value will be attached to it at the time of calculating the pension benefit or when the employee wants to take refund of the contributions. The credit service is earned each month at a ratio of one month for every credit. This can include credit also for some prior service or any additional service that may have been granted by the State employer.
The normal retirement age for an employee is 65. The employee becomes eligible for retirement at this age with an accumulation of at least five years of earned credit in service The employee can also retire at age 50 if there is an accumulation of thirty years of earned service credit. The age for mandatory retirement is 70, except for regional jail superintendents, sheriffs and jail farm superintendents.
Calculation of the Pension Benefit
The annual pension benefit amount is the product f the final average compensation and the number of years accumulated service credit at the time of retirement with the retirement multiplier factor. This is then divided by twelve to arrive at the monthly pension benefit before taxes or any other deductions. The retirement multiplier factor is (x 0.017).
The pension benefit of an employee is deposited on the first day of every month into a designated savings or checking account. This direct deposit method is a convenient one for the employee as it can make funds available all the time in the employee account.
The employee can designate any person living or an estate like a charity trust as a beneficiary. On the death of the employee, the designated beneficiary will be eligible to receive a lump sum amount of the retirement contributions with interest from the fund account along with any insurance cover the employee may have. More than one primary beneficiary can be designated. Each beneficiary will then receive an equal share of the retirement contributions or as per specific proportion recommendation by the employee. A contingent beneficiary also can be appointed. If the primary beneficiaries are not surviving the employee, then the pension benefit will be received by these contingent beneficiaries.
Pension Fund Statistics
The Virginia Retirement System has 437,000 active members. There are 163,000 retirees. The current rate of investment return is at 5.9%. The assets are 55.5 billion dollars. The funding level is at 75.2%.
Cost of Living Adjustment
COLA is being done with 3% increase as matched by the Consumer Price Index. The cap is going to be at a maximum of 5%. For those employees who have retired with twenty years of earned service credit, the COLA will be in effect from 1st July after one calendar year from the date of their retirement.
Plan 1 COLA Calculation
They calculate COLA, under this plan based on the initial 3 percent enhancement in the CPI-U plus 50% of any extra increase, subject to an increase reaching 4 percent, with a cap of 5%.
COLA Calculation under Plan 2
They calculate COLA, under this plan based on the initial 2 percent enhancement in the CPI-U plus 50% of any extra increase, subject to an increase reaching 2 percent, with a cap of 3%.
The Virginia Pension Plan (VRS) has achieved a thirteen per cent net return on its investment last year in the public equity fund and 5.9% in the fixed income fund. The management of the fund did remarkably well within the policy guidelines of the Board of Trustees by bringing in strong returns at minimum risk, as declared by the Board Chairman, Diana Cantor. The Retirement System of the State of Virginia ranks among the twenty largest public pension funds in the nation. (Source:http://www.varetire.org/news/2013/vrs-achieves-13-percent-return-for-2012.asp