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myVRS Navigator to Bring Changes in Creditable Compensation and Service Calculations
Posted: October 3, 2011
With the launch next spring of myVRS Navigator, VRS will be revising how creditable compensation and service credit are calculated.
The new calculations ensure that all employers report the same data to VRS and that creditable compensation and service credit are calculated consistently for all members. In the current environment, employers use different criteria to determine creditable compensation, which can create small variations in members' records. A complex system of posting service credit for teachers and faculty also causes exceptions. VRS identifies these differences through a manual review prior to granting benefits and works with employers to correct them.
Standardizing the calculations and eliminating manual review of data allows VRS to automate some processes. This enables VRS to offer more self-service transactions, such as applying for retirement online. Automating some processes also frees time for VRS to provide other services that cannot be performed by a computer, such as counseling.
Creditable Compensation
Instead of reporting creditable compensation for each employee, you will report annual salary which myVRS Navigator will use to calculate creditable compensation. Here's what this change will mean:
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Currently, you report creditable compensation from an employee's monthly pay. Periodic reductions in pay and, therefore, creditable compensation mean a reduction in the amount of the member and employer contributions. Although historic underfunding of certified contribution rates and more recent market upheavals have led to the underfunding of the VRS plans, fluctuations in reported compensation also impact the plans' funded status since VRS is not collecting full contributions for the reporting period. Annual salary, on the other hand, is subject to much less variation.
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Fluctuations in actual reported creditable compensation also can result in underestimating an employee's average final compensation. Using annual salary as the basis for calculating average final compensation in the future will mean fewer discrepancies, thus allowing VRS to provide automated and online benefit applications.
Service Credit
myVRS Navigator will calculate service credit, using the annual salary you report and the creditable compensation it calculates. The change primarily impacts service credit for employees such as teachers and faculty, as described below.
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Employees who complete a full year of employment, whether over a nine-, 10-, 11- or 12-month period, earn 12 service credits. For 12-month employees, this equates to one service credit for each month worked. Modernization's service credit calculation is seamless to these employees.
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However, for employees who work nine-, 10- or 11-months per year (such as teachers and faculty), the current system is more complex. These employees earn one or more months for every month in their employment contracts to reach a total of 12 per year. After Modernization is implemented, service credit for nine-, 10- and 11-month employees will accrue at a consistent rate each month. The monthly rate will be a factor of the number of months an employee works each year.
| Current Service Credit Accrual | Modernization Service Credit Accrual | |
|---|---|---|
| 12-month employees | 1 service credit per month for 12 months | 1 service credit per month for 12 months (no change) |
| Nine-month employees | 1 service credit per month for nine months and one additional credit in October, January and April | 1.3333 service credits per month for 9 months* |
| 10-month employees | 1 service credit per month for 10 months and one additional credit in November and April | 1.2 service credits per month for 10 months |
| 11-month employees | 1 service credit per month for 11 months and one additional credit in January | 1.0909 service credits per month for 11 months* |
*1.3333 per month for nine months equals 11.9997, which VRS will round to 12 at the end of the contract. 1.0909 per month for 11 months equals 11.9999, which VRS will round to 12 at the end of the contract.
The new system eliminates a manual workaround required when a nine-, 10- or 11-month employee separates employment before completing the contract. Since service credit is not posted as the contract is completed, VRS adjusts the employee's service credit manually to ensure they are not under- or over-credited for the actual time worked.
The new service credit calculation returns to the way service was posted until the 1980s. During that decade, VRS implemented the technology in use today. A shortcoming of that technology is its ability to accommodate service in whole numbers only, resulting in the system in place today.
Learn More
Review Understanding Modernization's Calculations for 12-month Employees 
and for Less than 12-month Employees for the new creditable compensation and service credit calculations. These documents include examples applying the creditable compensation and service credit calculations to a variety of employment situations.
