In a defined benefit pension plan the employer agrees to provide the employee with a specified benefit at retirement. Within VRS, the State and its political subdivisions must arrange to fund these promised benefits. This is done in accordance with the funding policy, based on actuarial principles, under which the defined benefit plan is managed.

Actuaries have developed a general theory of pension funding. According to the theory, the present value of future contributions to the system plus plan assets currently held in reserve must equal the present value of future plan benefits and expenses. Actuarial theory further states that if contributions are made in advance in the exact amount and according to the schedule recommended by the actuary, a pension fund will accumulate sufficient assets over time to pay for the expected post-retirement benefits of all plan members.

VRS pension benefits are funded through a combination of member contributions, employer contributions, and investment income. The member contribution rate is fixed by the Code of Virginia at five percent of their salary. The State, as well as most of its political subdivisions, pays the member contribution for its employees. The employer contribution rate is calculated by the VRS actuary at least every two years, and typically varies over time in response to a number of factors. Separate employer contribution rates are calculated for State employees, teachers, State police, other Virginia law officers, and judges. Each political subdivision has its own unique employer contribution rate.