In This Edition

1. VRS Plan Design Changes Take Effect July 1
2. School Divisions and Political Subdivisions May Elect to Pick Up Member Contribution
3. Understanding Plan 2 Purchase of Prior Service Provisions
4. Rate Letters Mailed to School Divisions and Political Subdivisions
5. Vesting Required to Receive a Full Refund
6. Transitional Benefits Program Provides Severance and Retirement Options for School Divisions and Political Subdivisions
7. Line of Duty Act Employers Will Contribute to Program’s Cost in 2012
8. COLA Adjustments Will Not Reduce Retirement Benefit
9. “Rehired” Under VSDP
10. Elect Voluntary Long-Term Care Program Now to Participate in Fall Open Enrollment
11. Update on VRS Handbook Printing and Distribution
12. Defined Contribution Plan Webinars Review Impact of Legislation
13. ORPHE Webinars to Discuss Legislative Changes
14. Modernization Update: VRS to Release Systems Requirements to Employers
15. Creditable Compensation Webinar Recording Available
16. Your Turn to Ask

Have an idea for a future article?

VRS Plan Design Changes Take Effect July 1

The Virginia General Assembly, in its 2010 session, passed legislation implementing new plan provisions for employees hired or rehired on or after July 1, 2010. The new plan provisions are called the Virginia Retirement System (VRS) Plan 2. The current plan provisions are called the VRS Plan 1. Current active members, current deferred members and current retirees are in Plan 1. Most employees hired or rehired on or after July 1, 2010 are covered under Plan 2. However, new employees with written employment contracts executed before March 15 who begin covered employment on or after July 1 are eligible for Plan 1. Rehired employees are those who left covered employment, withdrew their funds and returned to covered employment with no service credit in VRS or no account balance in a Virginia optional retirement plan. Their membership date is the date they were rehired.

See a comparison between Plan 1 and Plan 2 125kb.

See also HB 1189 and SB 232.

School Divisions and Political Subdivisions May Elect to Pick Up Member Contribution

Under the VRS Plan 2, state employees hired or rehired on or after July 1, 2010 will contribute 5 percent of their compensation each month to their member contribution account on a pre-tax salary reduction basis. School divisions and political subdivisions may pick up some or all of the 5 percent member contribution on their employees’ behalf. Any portion of the member contribution paid by school and political subdivision employees also will be on a pre-tax salary reduction basis. Political subdivisions that do not pay the 5 percent member contribution for current Plan 1 employees must elect to pick up the full contribution for these employees in order to pay some or all of the contribution for Plan 2 employees. VRS recently mailed a resolution packet containing election information to political subdivision administrative heads and school superintendents. Read the memo to political subdivision administrative heads 136kb and school superintendents 135kb.

School and Political Subdivision Member Contribution Pick Up Resolution

As required by the new plan design legislation, school divisions and political subdivisions that wish to pay some or all of the 5 percent member contribution must submit a duly authorized resolution to VRS. School superintendents and administrative heads of political subdivisions that currently pick up the full member contribution recently received a guide resolution from VRS. On the resolution, VRS asks that you acknowledge one of the following:

• Your Plan 2 employees will pay the 5 percent member contribution. This option does not require action by your governing body.
• You will elect to pick up between 1 percent and 5 percent of the Plan 2 member contribution. This option requires you to complete and submit a duly authorized resolution to VRS. Please submit your resolution as soon as possible.
• You can elect to pick up the full 5 percent member contribution on a six-year, phase-in schedule. Contact your employer representative to receive this guide resolution.

The resolution is revocable on an annual basis. However, all subsequent resolutions apply to all Plan 2 employees and will void any previous resolutions. School divisions electing to pick up some or all of the member contribution are encouraged to share the resolution with their local governing body for future budgetary planning purposes. If you have questions about preparing and submitting the resolution, please contact your employer representative.

Reporting Member Contributions – All Employers

No file layout changes are required of any employer to report Plan 2 contributions. VRS will identify Plan 1 and Plan 2 employees and allocate the contributions accordingly. State employers should refer to the Department of Accounting payroll bulletins for additional information regarding CIPPS and non-CIPPS reporting.

Understanding Plan 2 Purchase of Prior Service Provisions

Provisions for Plan 2 members purchasing prior service were among the changes included in plan design legislation, but with an effective date of January 1, 2011. In general, the eligibility period for purchases by Plan 2 members will be one year instead of three years. The cost basis during the eligibility period also changes from 5 percent of compensation or average final compensation to an approximate normal cost rate, to be determined by the VRS Board of Trustees and its actuary, for most types of prior service. After the one-year eligibility period, Plan 2 members will pay the full actuarial cost as is required of Plan 1 employees purchasing prior service after their three-year eligibility period. For VRS refunded service, no-cost military leave and sick leave conversions, Plan 2 members are subject to the same provisions as Plan 1 members.

Plan 2 Prior Service Timeframes

As provided in the legislation, VRS has until January 1, 2011 to implement purchase of prior service changes. However, Plan 2 members with VRS refunded service or active duty military leave, or those who are eligible to convert sick leave to service credit, may submit an Application for Purchase of Prior Service Credit (VRS-26) 46kb and other required forms upon employment. The three-year eligibility period will begin on their first day of employment. Prior service credit for payroll errors also may be submitted at any time. Plan 2 members purchasing any other type of prior service must wait to apply after January 1, 2011.

Additional information about purchase of prior service for Plan 2 employees will be available later this summer.

Rate Letters Mailed to School Divisions and Political Subdivisions

School superintendents, political subdivision administrative heads and political subdivision and school division fiscal agents recently received an employer contribution rate letter providing rates for retirement, group life insurance and the health insurance credit for the last five pay periods of fiscal year 2010 and another letter providing these rates for fiscal years 2011-2012. If you did not receive a rate letter, please contact your employer representative.

Vesting Required to Receive Full Refund

Under House Bill 892, employees must be vested (have at least five years of service credit) to receive a full refund of their member contribution account balance. Employees who request a refund and are not vested are eligible for any contributions they have made to their member contribution account, plus accrued interest. They also are eligible for any contributions made by their employer before July 1 and the interest on these contributions. They are not eligible for a refund of any contributions made by their employer after July 1 or the interest on these contributions. This legislation applies to both Plan 1 and Plan 2 members.

Employees covered under Plan 1 who take a refund and return to a covered position after July 1 will be rehired under Plan 2. If they purchase their refunded service, they will remain in Plan 2. The credit for their refunded service will count toward the service credit they earn as a member covered under Plan 2.

If a non-vested member leaves employment and does not take a refund, the service and employer contributions will remain if the member returns to a covered position. If a member is not vested after July 1, leaves employment and decides to take a refund of his or her employee contributions, the member will lose that service if he or she returns to covered employment and will not be eligible for any previous employer contributions. Any employer contributions made on behalf of a non-vested member who leaves employment will be transferred to your retirement allowance account. Your employer contributions to VRS are held in this account.

Transitional Benefits Program Provides Severance and Retirement Options for School Divisions and Political Subdivisions

The 2010 General Assembly established the Transitional Benefits Program to allow school divisions and VRS-participating political subdivisions to provide a transitional severance benefit or an enhanced retirement benefit to employees who are involuntarily separated from employment. Involuntary separation is a layoff because of a budget reduction, agency reorganization, workforce downsizing or other causes not related to job performance or misconduct. The program is effective through June 30, 2012 and you can elect it by submitting a resolution to VRS.

Teachers, other school employees (cafeteria workers, bus drivers and maintenance workers) and political subdivision employees are eligible for benefits under the program, depending on your election. Sheriffs, treasurers, commissioners of revenue, commonwealth attorneys and circuit court clerks are not eligible for the Transitional Benefits Program. However, personnel reporting to these employees are eligible for the program. If you elect this program, you are responsible for the transitional severance payments and the cost of enhanced retirement benefits will be factored into your future employer contribution rate.

A resolution packet with details on this program was mailed to school superintendents and political subdivision administrative heads.

Questions? Contact your employer representative.

Line of Duty Act Employers Will Contribute to Program’s Cost in 2012

Beginning in fiscal year 2012 (July 1, 2011 to June 30, 2012), state and political subdivision employers with hazardous duty employees covered under the Virginia Line of Duty Act (LODA) will pay contributions for the cost of the program. VRS will conduct a census of covered members, including volunteers serving in fire departments and rescue squads, in order to complete an actuarial valuation of the program and establish employer contribution rates for FY 2012.

The Department of Accounts will continue to administer benefits for beneficiaries and their families. VRS will assume responsibility for actuarial services, rate setting, premium collection and money management. Before July 1, 2011, local governments will be granted a one-time irrevocable election to opt out of the VRS-managed program and elect to finance its ongoing benefit obligations locally. VRS will notify employers on how to exercise their one-time election. Whether employers choose to self-fund benefits or participate in the financing program managed by VRS, state agencies and local governments will be responsible for the costs associated with the benefits for covered hazardous duty employees and volunteers provided under the Line of Duty Act.

COLA Adjustments Will Not Reduce Retirement Benefit

During periods of no inflation or deflation, the cost-of-living adjustment (COLA) for VRS retirees will be 0 percent rather than a negative COLA that would reduce the retirement benefit. The COLA is based on the amount of increase or decrease in inflation. It is determined by calculating the annual average Consumer Price Index-Urban (CPI-Urban) for the two years prior to the effective date of the COLA.

The COLA for Plan 2 retirees will match the first 2 percent increase in the CPI-Urban and half the remaining increase, up to a maximum COLA of 6 percent. The COLA for Plan 1 retirees will continue at the current calculation matching the first 3 percent increase in the CPI-Urban and half the remaining increase, up to a maximum COLA of 5 percent.

The COLA goes into effect on July 1 of the second calendar year after the employee’s retirement date and is effective each July 1 thereafter, when provided. The COLA appears in the August 1 benefit payment.

“Rehired” Under VSDP

Last year, the General Assembly authorized changes to provisions for the Virginia Sickness and Disability Program (VSDP). State employees hired or rehired on or after July 1, 2009 must complete one year of continuous employment before becoming eligible for short-term and long-term disability coverage for non-work related disabilities. During the first five years of employment, these employees receive 60 percent of their pre-disability income if they go on short-term disability for a non-work related disability. After five years, they become eligible for income replacement beginning at 100 percent of their pre-disability income, which reduces to 80 percent and then 60 percent.

For more information, see Virginia Sickness and Disability Program.

Elect Voluntary Long-Term Care Program by July 16 to Participate in Fall Open Enrollment

School divisions and political subdivisions that have not signed up to offer the Commonwealth of Virginia Voluntary Group Long Term Care Insurance Program should do so by July 16 so your employees can participate in a new open enrollment period coming this fall. Like the initial open enrollment period, this one will require limited or no medical underwriting.

Since the program is employee-paid, it does not cost you anything to offer it. To participate in the fall enrollment, contact Genworth Life at GLTCInfo@genworth.com and provide VRS with a signed Employer Adoption Agreement 70kb and a mailing list of your eligible employees by no later than July 16.

If you participated in the initial enrollment period that concluded May 21, employees who have not enrolled in the program are not eligible for the fall open enrollment period. However, they can enroll at any time, subject to full medical underwriting. Employers who participated in the initial enrollment period include:

• State agencies
• Virginia General Assembly
• Virginia Commonwealth University
• University of Virginia
• James Madison University
• Loudoun County
• City of Alexandria
• City of Lynchburg
• Arlington Public Schools

Learn more about the Commonwealth of Virginia Voluntary Group Long Term Care Insurance Program.

Update on VRS Handbook Printing and Distribution

Plan 2 Handbooks for Members Hired or Rehired On or After July 1, 2010

The Virginia Retirement System (VRS) is developing a new Plan 2 Handbook for Members for employees hired or rehired effective July 1, 2010 under VRS, the State Police Officers’ Retirement System (SPORS), the Virginia Law Officers’ Retirement System (VaLORS) and in political subdivision positions eligible for enhanced hazardous duty coverage. The VRS Plan 2 member handbook will be posted on the VRS website on July 1 with printed copies available in late July. The Plan 2 member handbooks for SPORS, VaLORS and political subdivision hazardous duty employees will be available on the website and in print beginning this fall. Plan 2 addendums for these members will be posted with the current handbooks on July 1. Please stay tuned to Employer Update for announcements on when each handbook will be available for your new hires.

Plan 1 Handbooks for Members Hired Before July 1, 2010

VRS will no longer print and stock the Handbook for Members for the Plan 1 member groups. This will allow VRS to dedicate communication resources to support your new employees hired under Plan 2. The Plan 1 handbooks will continue to be updated and maintained on the VRS website for current employees and deferred members who return to covered employment under Plan 1.

VSDP Handbook and Retiree Handbook

VRS will continue to print and stock the Virginia Sickness and Disability Program (VSDP) Handbook for Participants and the Retiree Handbook as well as update and maintain them on the VRS website. Note: The VSDP handbook is being revised and will be available later this summer.

Defined Contribution Plan Webinars to Review Impact of 2010 Legislation

Register for one the following employer webinars to learn more about how legislation adopted by the 2010 Virginia General Assembly will affect the defined contribution plans. The webinars will include information on changes to eligibility for the standard catch-up and the impact of plan design changes on the optional retirement plans.

Defined Contribution Plans Webinars

Date	Time
June 22	9:30 - 11 a.m. *This session was originally scheduled for June 15 at 9:30 a.m. If you were already registered for that session, you do not need to re-register.	Register
July 23	9:30 - 11 a.m.	Register

Encourage your employees to attend a 457 Deferred Compensation Plan Regional Education Meeting in your area. Check the Resource Center for VRS Employers for information on the 457 plan as well as the optional retirement plans and the Virginia Supplemental Retirement Plan.

ORPHE Webinars to Discuss Legislative Changes

If you are a college or university human resource officer, plan to attend one of the following webinars on the impact of 2010 legislative changes on the Optional Retirement Plans for Higher Education (ORPHE). Topics will include eligibility for Plan 1 and Plan 2 ORPHE participants, contribution rates, contribution reporting and required plan amendments. The presentation also will include information on the impact of changes to the normal retirement age for retirement and eligibility for benefits such as group life and health insurance.

2010 Legislative Changes and ORPHE

Date	Time
June 21	3-4:30 p.m.	Register
June 23	10:30 a.m. - noon	Register

Modernization Update: VRS to Release Systems Requirements to Employers

This summer, VRS will distribute information about system requirements for the Modernization program. This information will explain the new technology and processes in order for your organization to interact with VRS through its new system. The VRS Modernization liaison identified for your organization will receive the requirements and distribute them internally to individuals who need the information. Information also will be posted under the Modernization tab.

Creditable Compensation Webinar Recording Available

Last month, higher education and school division employers participated in a webinar introducing them to how VRS will calculate creditable compensation and service credit in the new system. The recorded version 57kb is now available. The webinar explains the enhancements that VRS will make under Modernization to creditable compensation and service credit accrual for 12-month employees and contract employees, as well as how employers will submit data in the future. VRS is preparing another webinar on this topic for state employers and political subdivision employers, which will be available this summer.

To view recorded versions of VRS’ first two Modernization webinars, go to Introduction to Modernization 103kb, and Modernization: Enrollment and Employer Reporting 162kb.