The 2012 General Assembly enacted changes during their 2012 session that affect the Virginia Retirement System (VRS).  City of Alexandria employees submitted questions on the VRS changes when they were first announced on AlexNet.  Here are answers to those questions.  Some of the questions were merged into one question because they covered the same topic.  These questions were answered using information provided by VRS.  Please refer to the  VRS website  for more details.

1.  Why are changes being made to contributions and salary?

The General Assembly enacted changes to VRS during their 2012 legislation session in response to concerns over the sustainability of VRS and the increasing cost to the state budget and the budgets of localities.  The General Assembly also mandated salary increases to help reduce the impact of the increased contributions on employees' take home pay.  This is the same action the General Assembly took when it required that all state employees start contributing the full five percent member contribution to VRS on July 1, 2010.

2. Do the VRS changes apply to all City employees?

Various changes will apply to all employees working in a position covered by VRS.  All regular, full-time employees classified as General Schedule Employees, Deputy Sheriffs, Medics, and Fire Marshals are covered by VRS.  Firefighters and Police Officers are not affected by these changes, because they have their own retirement plan.

3. Are Deputy Sheriffs, Medics, and Fire Marshals impacted since they are hazardous duty employees?

City of Alexandria Deputy Sheriffs, Medics, and Fire Marshals are affected.  The state exempts these employees from the changes only if their locality covers them under the VRS hazardous duty program.  The City of Alexandria does not cover these employees under the  hazardous duty program, because it provides additional benefits under the Supplemental Retirement Plan.

1. Do employees contribute five percent or one percent to VRS? 

The VRS member contribution rate is five percent.  Previously, the City had elected to pay the member contribution on behalf of employees.

Effective July 1, 2010, the General Assembly created VRS Plan 2 for employees who became VRS members after June 30, 2010.  Plan 2 employees have been contributing four percent, and the City has been contributing the remaining one percent member contribution.  Effective July 1, 2012, the General Assembly requires Plan 2 employees to pay the full five percent member contribution. Additionally, employees (including Plan 1 members) hired or rehired by the City after June 15 will contribute the full five percent member contribution. 

The General Assembly gave localities the option to phase in the five percent member contribution by July 1, 2016, for current Plan 1 members.  As part of the budget that City Council passed on May 8, 2012,  current Plan 1 employees will contribute one percent beginning July 1, 2012, and an additional one percent each year until these employees are contributing the full five percent on July 1, 2016.   The City will contribute the remaining portion of the five percent  member contribution that current Plan 1employees are not contributing.  City Council has the right to accelerate the contribution to five percent prior to July 1, 2016.

The City also makes employer contributions for VRS covered employees.  The employer contribution rate, which changes every two years, is 10.30% in FY 2013.  For current Plan 1 employees hired before June 16, 2012, the City will also be contributing the remaining four percent member contribution for a total of 14.30%.

2. How does the offsetting salary increase work?  Will employees also receive a merit increase?

Current VRS employees will increase their member contribution one percentage point in FY 2013.  The General Assembly mandated that current employees increasing their contributions also receive an offsetting salary increase in the same amount.  Therefore, current VRS covered employees will receive an offsetting salary increase of one percent effective July 1.  This is not a Cost of Living Adjustment (COLA).  It is a salary adjustment increase mandated by the Virginia General Assembly.  This increase will take place during the pay period ending July 6 paid to employees on July 13.

Over the next four years, City Council will determine each year whether to add an additional one percentage point or more to the member contribution in order to reach the five percent by July 1, 2016.  Employees who receive an increase to their contribution will also receive offsetting salary increases of the same amount.

The one percent salary offset is separate from any budgeted merit increase employees are scheduled to receive.  For information on merit increases, consult AlexNet for information from Human Resources regarding budgeted increases for FY 2013 or your department’s HR Liaison.

3. Can an employee opt out of VRS?

Participation in VRS is a requirement of employment for all regular, full-time employees classified as General Schedule employees, Deputy Sheriffs, Medics, and Fire Marshals.  Firefighters and Police Officers are not covered under VRS, because they have their own pension plan.

4. Can part-time employees join VRS?

Employees become members of VRS when employed in a position covered by VRS.  City part-time positions are not covered under VRS.  However, part-time employees will become VRS members if they transfer to full-time positions covered under VRS, at which point they will pay the same contribution amount as similarly situated full-time employees.

1. Will the one percent contribution increase and mandated one percent salary increase offset each other? 

Not quite.  Take home pay will decrease slightly.  As salaries increase, the contribution deductions also increase, because they are based on a percentage of salary.  Here is an example of a Plan 1 Employee who receives a one percent increase and contributes one percent effective July 1, 2012.

In the long term, retirement benefits also increase as salary increases.  Salary is one part of the formula to calculate monthly benefits for Social Security and the pension plans.  Life insurance benefits are based on salary as of the first of the year.

2. Will I have to pay additional taxes since my salary is increasing?

It is possible.  Contributions to VRS are deducted from pay checks on a tax-deferred basis (that is, before federal and state taxes are deducted but after Social Security and Medicare taxes are deducted).  If the total gross income increases, the dollar amount of Social Security and Medicare taxes will also increase.  

What is vesting?  Does it matter when I become vested?

Employees are vested when they accrue five years of service under VRS.  This makes them eligible to receive a monthly pension benefit after they satisfy the plan’s age and service requirements.

Plan 1 employees who are not vested on January 1, 2013, will be subject to the benefit changes that take effect on January 1, 2013.  These changes impact when employees can retire and the amount of the monthly benefit.

Plan 1 employees who will not be vested on January 1, 2013, may want to review the VRS information on purchasing service to determine if they are eligible to purchase any service that would allow them to become vested on January 1, 2013.  Employees may call VRS at 888.827.3847 for more information.  Employees who are considering purchasing service have a very limited time to do so.  Start the process now by completing the VRS 26 Application of Purchase of Prior Service  and mailing it to your previous governmental employer.  After VRS receives these forms they mail information to employees to let them know if the service may be purchased and the associated cost.  There is no cost for VRS to respond to employees with cost estimates.  VRS is behind in processing these forms, so be sure to allow plenty of time for VRS to receive forms and respond with cost information.  Call VRS at 888.827.3847 if you need any help with this process.

1. Is there any way I can increase the amount of service credit I have in VRS, particularly if I am Plan 1 and will not have five years of service as of January 1, 2013?

See answers to questions above and below.  

2. Should I consider purchasing service in VRS?

Purchasing service may allow employees to retire earlier or with a larger benefit.  Employees with other prior government service (federal, state, county, etc.), periods of active military duty, and some periods of breaks in service from prior government employers may be eligible to purchase VRS service credits for that prior service.  Eligible service may be purchased so long as it is not being used to be eligible to receive a retirement benefit from that employer. 

Employees who withdrew their prior member contribution accounts from VRS after leaving prior VRS covered employers also forfeited their service credit.  These employees may apply to purchase the refunded service from VRS.  These employees have a limited time to complete part A of the  VRS 26 Application of Purchase of Prior Service  and mail it to VRS.  Call VRS at 888.827.3847 if you need any help with this process.

All employees may find that purchasing eligible prior service is beneficial.  Purchased prior service is added to service accrued while working for a VRS covered employer to determine vesting date, retirement date, and to calculate monthly retirement benefits.  For more information, visit the  VRS website , and click on the link to “Purchase of Prior Service.”

Plan 1 employees who will not be vested on January 1, 2013, will be subject to all of the benefit changes that take effect on January 1, 2013.  These employees should visit the VRS website immediately to review the rules for purchasing prior service credit to determine if they are eligible to purchase service.  Employees interested in purchasing prior government service credit will need to act now and complete the VRS 26 Application for Purchase of Prior Service Credit.  Employees section A of the  VRS 26 Application of Purchase of Prior Service  form and send it to their former employer to complete Sections B and C.  Employees who withdrew their member contribution account for prior VRS service mail their completed  VRS 26 Application of Purchase of Prior Service  page one directly to VRS for a cost estimate to repurchase that service. 

VRS Plan 2 members may also purchase eligible service.  However, even after purchasing service, they will still be subject to the Plan 2 benefit provisions.  For Plan 2 members, the cost to purchase service is less during the first year of service.  If a payroll contract begins within the first year of service the service may be purchased over several years at the lower percentage rate.

Employees who decide to purchase service through a payroll contract should contact the Pension Administration Division after receiving their cost letter.  Call 703.746.3887 or 703.746.3885 or email pensions@alexandriava.gov .

3. I am a Plan 1 member who is in the midst of purchasing service with a payroll-deducted contract that ends after January 1, 2013.  The amount of service I am purchasing will give me the five years I need to be vested on January 1, 2013.  Will VRS allow me to break the contract so I can purchase all of the service prior to January 1, 2013?

VRS has notified employers that contracts to purchase service cannot be broken due to Internal Revenue Service Regulations.  Call VRS at 888.827.3847 for more information.

Employees who are in the midst of purchasing service through a payroll deducted contract may have another option.  Service that VRS certified as being eligible for purchase that is not part of the payroll-deducted contract may be eligible for purchase through a lump sum purchase.  Contact VRS at 888.827.3847 immediately for more information.

4. I will not have five years of VRS service as of January 1, 2013.  However, I have already purchased some eligible service and am purchasing additional service through payroll deducted payments.  How will this affect me?

VRS counts all service, including purchased service, to determine if employees are vested and to calculate their benefits.  For employees purchasing service through a payroll deducted contract, VRS indicated they will only count service purchased through December 31, 2012, to determine if those employees are vested by January 1, 2013.  The service that these employees purchase after December 31, 2012, will not be used to determine if they are vested on January 1, 2013.

For Plan 1 members, their vested status on January 1, 2013 will determine how the benefit changes impact them.  Plan 1 members who are vested on January 1 will continue to be subject to the current Plan 1 provisions.  Plan 1 members who are not vested on January 1 will become subject to all of the benefit changes that take effect on January 1.  The benefit changes include the following that are used to calculate pension benefits:  percentage multiplier, average final compensation, the age employees are eligible to receive a reduced or unreduced monthly benefit, and the date COLA benefits may begin for early retirees.

Plan 1 members who are purchasing service and who will not be vested by December 31, 2012, should read the answer to the previous question.

5. I am currently in a contract to purchase past service credits through payroll deductions.  Will the amount that is being deducted from my pay check change?

Payroll deductions to purchase service are based on a percent of your current compensation.  You will pay the same percentage to purchase service, but the dollar amount associated with the percentage will increase as salary increases.

1. I was going to retire in the next six to 12 months.  What difference will these changes make to me?

Benefits accrued through December 31, 2012, will not change.  The state constitution prohibits that.  However, the rate of future pension accruals for future service may be less.  Read on for more information.

Plan 1 members who are vested on January 1, 2013, may only be affected by the COLA changes.  More information on COLAs appears of the end of this answer.

Plan 1 members who are not vested on January 1, 2013, will be subject to all of the January 1 benefit changes.  

Plan 2 members are already subject to most of the benefit changes.  However, their multiplier will change from 1.7 percent to 1.65 percent for service accrued beginning January 1, 2013.  The multiplier is a percentage used in the benefit formula to calculate how much retiring employees will receive as a monthly benefit.

All VRS covered employees with less than 20 years of VRS service who are planning to retire with reduced benefits will be impacted by the Cost of Living Adjustments (COLAs) changes.  These employees will be eligible for their first COLA July 1after one calendar following their unreduced retirement eligibility date. 

2. I plan to retire in the next year or two.  Will VRS use the salary with my 1% increase in calculating my monthly retirement benefit?

Yes.  To calculate monthly retirement benefit amounts, VRS uses the 36 (Plan 1 vested on January 1, 2013) or 60 (all other employees) consecutive months of compensation that provides the highest average to calculate retirement benefits.  For most employees these are the last 36 or 60 months of work.  Compensation used to calculate the benefit includes base salary and salary increases, but does not include overtime, shift different, bonuses, and other special pay.

What is the Hybrid Plan and who will be covered under this plan?

A new VRS plan, called the Hybrid Plan, is being created for employees who will become members of VRS January 1, 2014 or later.  The Hybrid plan will have two parts.  The defined benefit component will be similar to Plan 2.  However, employees will receive smaller benefits than under Plan 1 or Plan 2.  There will also be a defined contribution component that will provide retirement benefits subject to the fluctuations of the market and the investment funds employees choose.  VRS will provide more details about the Hybrid Plan during 2013.

VRS has indicated current employees will have a short period of time to transfer to the Hybrid plan during 2014.  Visit the VRS website often to view more information on the Hybrid Plan.

1. Are there other sources of information for VRS Changes?

Employees should visit the  VRS website  on a regular basis to view information on their plan and changes to VRS.  The General Assembly may make changes to VRS during their legislative session held at the beginning of each year.  General Assembly changes are reported on the VRS website.

VRS reports changes in the Member News Bulletin that is published electronically several times a year.  You can find the link for the Member Newsletter Bulletin under the “Member” tab and the "Publications" tab.

The Pension Administration Division also provides information on changes on AlexNet and the  City website .  Pension Administration Division information appears under the Finance Department.

VRS covered employees may also call VRS at 888.827.3847 for answers to their questions.  The first ten days of the month are typically the busiest call days.

2. Will the VRS benefit calculator system be updated with the recent changes?

Yes.  However, VRS has much to do to update their benefit estimator system on the VRS web site with the January 1, 2013 benefit changes.  VRS has not provided a schedule on when their estimator system will be updated.

VRS is in the midst of modernizing their entire system.  This has been going on for over a year and will continue for at least another year.  After the modernization is completed, employees will have access to more options on the VRS system.  Visit the VRS website for more information on the system modernization and to view annual statements, other personal information, and to estimate retirement benefits.