Benefit Payout Options
How Your Retirement Benefit Is Paid
When you retire, your benefit is paid first from your member contribution account. After these funds have been paid out, your benefit is funded from a separate contribution your employer makes to VRS and investment earnings.
You receive your retirement benefit in the form of a monthly benefit according to a payout option you choose when you apply for service retirement. The payout option you elect at retirement is irrevocable. You cannot change it after you retire, except for the Survivor Option under some conditions.
The Basic Benefit is a monthly benefit in retirement based on your age, total years of service credit and average final compensation. The unreduced benefit is calculated using a percentage of your average final compensation multiplied by your total years of service credit. This percentage is called a retirement multiplier. See VRS Retirement Plans for more information about your benefit calculation. An early retirement reduction factor is applied to this amount if you retire early.
The Basic Benefit does not provide a continuation of a benefit to a survivor. However, your named beneficiary may be eligible for a lump-sum payment of any funds remaining in your member contribution account upon your death.
With this option, you elect to receive a lower monthly benefit during your lifetime so that your survivor can receive a monthly benefit after your death. You can name any living person as your survivor; you also can name more than one survivor. If you elect the Survivor Option, you will choose a whole percentage of your benefit, between 10 percent and 100 percent, to go to your survivor. Your benefit amount is based on this percentage, your age and the age of your survivor at retirement. Internal Revenue Service (IRS) requirements may limit the percentage that can go to a non-spouse survivor.
You can name a new survivor or revert to the Basic Benefit if:
- Your survivor dies;
- Your survivor is your spouse and you divorce with fewer than 20 years of marriage;
- Your survivor is your spouse, you divorce after 20 or more years of marriage and your survivor dies, remarries or consents in writing to a change in the benefit; or
- You provide VRS a written consent from your survivor giving up claim to a benefit along with proof of your survivor’s good health.
Note: You can change the Survivor Option only once during your lifetime. In addition, if you are divorced and VRS has an Approved Domestic Relations Order (ADRO) on file, your benefit must be paid as directed by the ADRO.
If you revert to the Basic Benefit instead of naming a new survivor, the Basic Benefit is payable retroactively no more than 60 days before the date VRS receives your completed authorization form (VRS-5C). In the case of a divorce, the change is effective as of the date of the final divorce decree or no more than 60 days before the date VRS receives your completed authorization form.
Partial Lump-Sum Option Payment (PLOP)
If you work at least one year beyond the date you are eligible for an unreduced retirement benefit, you may elect to receive a one-time Partial Lump-Sum Option Payment (PLOP). This option reduces your monthly benefit. You can elect this option with the Basic Benefit or Survivor Option. If you elect the PLOP with the Basic Benefit, your beneficiary may be eligible for a lump-sum payment of any funds remaining in your member contribution account upon your death. However, because the PLOP is paid from your member contribution account, you may not have a balance upon your death. Or your balance may be lower than if you elected the Basic Benefit without the PLOP.
You may elect up to three times the amount of your annual Basic Benefit. The amount depends on how long you work beyond your eligibility for an unreduced retirement as shown in the following table:
|Active Service Beyond Unreduced Retirement Eligibility Date||PLOP Amount||Example (Based on a VRS Plan 1 member with 33 years of service credit and $48,000 in average final compensation.)|
1 x annual Basic Benefit amount (one-year PLOP)
1 or 2 x annual Basic Benefit amount (one- or two-year PLOP)
$26,928 or $53,856
36 months or more
1, 2, or 3 x annual Basic Benefit amount (one-, two- or three-year PLOP)
$26,928, $53,856 or $80,784
Qualifying for the PLOP
Prior service credit or granted service credit counts toward eligibility for unreduced retirement. However, to qualify for a PLOP, you must be working as an active member beyond the date you become eligible for an unreduced retirement benefit. Prior service credit or granted service credit cannot substitute for this active service.
Taxes and Rollovers
If you have the PLOP paid directly to you, VRS will deduct 20 percent for federal income tax and, if you live in Virginia, 4 percent for state income tax. The Internal Revenue Service (IRS) also may impose an additional 10 percent tax penalty if you receive the PLOP before age 59½. You have the option to roll over your PLOP to the Virginia Cash Match Plan if you participate in the plan, an Individual Retirement Account (IRA) or another qualified tax-deferred savings plan. For additional information, read the IRS 402(f) Special Tax Notice, contact your tax advisor or visit the Internal Revenue Service website.
Advance Pension Option
With this option, you elect to temporarily increase your monthly retirement benefit. The temporary increase begins at retirement and continues until an age you choose, between age 62 and your normal retirement age under Social Security. At the age you select, your retirement benefit permanently reduces. You can elect this option with an unreduced benefit or a reduced benefit. The Advance Pension Option does not provide a continuation of a benefit to a survivor.
If you are retiring with a reduced benefit, you can elect this option if:
You are a state employee, teacher or political subdivision employee and are age 55 or older (age 60 or older if you are in Plan 2 or hybrid) and have at least five years of service credit; or
You are a member of the State Police Officers' Retirement System (SPORS), the Virginia Law Officers' Retirement System (VaLORS) or VRS serving in a political subdivision position covered by enhanced hazardous duty benefits, and are age 50 or older with at least five years of service credit.
To determine your benefit amount, VRS will add a percentage of your estimated monthly Social Security benefit to your monthly VRS benefit. The percentage is based on several factors, including your age at retirement and the age you want your increased benefit to permanently reduce. When the temporary increase ends, your benefit will be reduced by the full estimated Social Security benefit used to determine your temporary increase. However, it will never reduce by more than 50 percent of your basic benefit amount.
You will need an estimate of your Social Security benefit through the Social Security Administration website if you want to create an estimate of your benefit under the Advance Pension Option or to elect the option at retirement. The social security estimate must be fewer than 12 months old, assume you will have no future earnings after leaving your position and be based on your Social Security earnings record.
When creating your social security estimate follow these steps:
- Go to http://www.socialsecurity.gov and select the Retirement Estimator on the homepage. On the next page, scroll down to select "Estimate Your Retirement Benefits."
- Follow the prompts and enter the required information on the "Verify Your Identity" page. Before you select "submit," print this page. This is the verification page you will need to submit with your retirement estimate.
- Enter your salary from the previous year and select "Next" to see different Social Security retirement scenarios.
- From this page, select "Add a New Estimate" to create an estimate based on your Stop Work Age:
- Under "What age do you plan to stop working?" select the age you wish to retire from VRS.
- Under "What is your average future earnings (per year)?" enter zero (0) if your current age is the same as your Stop Work Age-or-enter your annual salary from the previous year if your current age is less than your Stop Work Age.
- Select "Submit." Print your estimate.
To complete an estimate of your VRS retirement benefit under the Advance Pension Option, log into your myVRS account and select Benefit Estimator. You can create different estimates to explore your retirement options. Each estimate can be saved for 30 days from the date you create them.
If you are applying for retirement, include the printout from steps 2 and 4 with your retirement application. VRS will use these results to create the Social Security estimate needed to calculate your benefit under the APO based on the age you would like your temporary VRS benefit increase to end.
Important Note: The selection of the Advance Pension Option does not affect your Social Security benefit amount. You may draw your Social Security when you are eligible, regardless of the age you choose for your VRS benefit to reduce. You cannot elect the Advance Pension Option with other benefit payout option