Frequently Asked Questions about VRS
Are VRS pension benefits adequately funded?
Over the last couple of actuarial valuations, the funded levels for all of the systems have declined. This is primarily due to losses reflected in the actuarial value of assets. Based on the June 30, 2009 actuarial valuation, the State, Teacher, State Police, Virginia Law Officers, and the Judicial retirement systems are not fully funded.
The VRS Board of Trustees has adopted strong funding objectives and has approved rates that are higher than the actuarially computed rates in order to move the systems to at least 90% funding over a shorter period of time. The effectiveness of the rates recommended by the actuary in achieving the desired funding levels is negatively impacted by decisions to contribute at less than the recommended rates.
For related information, see Funding of Benefits.
What is the relationship between the amount of money in an employee's member account and the amount of the VRS benefit?
The two are not related, with one exception. VRS provides a defined benefit which is equal to the benefit multiplier times years of service times average final compensation. Provided that an individual is eligible to retire, a pension benefit equal to this amount is paid regardless of the amount in the member's account. Member contributions are used to help fund the defined benefit, but the contributions themselves do not make up the benefit.
The exception applies to an individual retiring under the 50/10 early retirement provision. In this situation, a retiree receives a benefit equal to the greater of the benefit formula calculation using actuarial reduction factors, or the actuarial present value of his accumulated contributions plus interest.
The defined benefit approach to providing retirement benefits differs from a defined contribution benefit plan, under which a member's benefit is directly tied to the amount of his contributions and investment decisions. Under a defined contribution retirement plan, which is increasingly common in the private sector, accumulated contributions plus investment earnings are paid to the individual at retirement. That is the extent of the retirement benefit.
For related information, see Service Retirement and Optional Retirement Plans.
Can an employee borrow against his or her VRS account balance?
No, this is not permitted by the Code of Virginia.
How long does it take for a member to receive a refund?
A member leaving the retirement system should receive a refund within 45 to 60 days after VRS receives the completed form or the final payroll contributions have been reported by the employer to VRS, whichever is later.
How much interest does VRS pay on refunded member contributions?
There is a guaranteed four percent interest rate set by Section 51.1-147 of the Code of Virginia.
How can a member roll-over a refund so that it is not taxed?
A member may instruct VRS to roll over the amount of the refund into another qualified employer retirement plan or to an individual retirement account. If the refund is not rolled-over, VRS is required to withhold 20 percent for federal income tax purposes. If the recipient of the refund is a Virginia resident, VRS is required to withhold an additional four percent for Virginia income tax purposes.
© 2010, Commonwealth of Virginia