VRS Board Approves Recommendations for 2009 COLA Overpayment
RICHMOND, VA June 22, 2012 — The Virginia Retirement System (VRS) Board of Trustees yesterday approved the following recommendations regarding an error VRS recently discovered in how the cost-of-living adjustment for 2009 was calculated by the VRS actuary:
The gross benefit amount for retirees who received an incorrect COLA of 3.84 percent in 2009 will be recalculated to reflect the correct COLA of 3.42 percent for that year. Then COLAs for 2010 (0 percent – no COLA) and 2011 (1.28 percent) will be applied to the benefit amounts. VRS will apply the 2012 COLA of 3.08 percent, effective July 1, 2012. These actions will take care of the error in 2009 and provide the affected retirees a correct benefit amount going forward.
In addition to adjusting the gross benefit amount, VRS is required to recover the amount of overpayments made to retirees (as well as beneficiaries and survivors) from 2009 to present. VRS will retain the overpayment for each retiree from the retiree’s life insurance amount before any payment is made.
Approximately 129,000 retirees and beneficiaries are affected by the incorrect 2009 COLA. The cumulative overpayment totals approximately $28.7 million. This compares to an annual retiree payroll that exceeds $3 billion, or $9.7 billion over fiscal years 2009-2012. When spreading the overpayment over the number of retirees and beneficiaries who received the incorrect COLA, the cumulative overpayment averages $239 per individual over the three-year period.
For retirees who received overpayments, but are now deceased, and for some state employees on long-term disability under the Virginia Sickness and Disability Program (VSDP), the VRS actuary will pay approximately $1 million to cover the overpayments to these individuals. For about 6,500 recipients who are survivors of deceased members (life insurance benefits have already been paid and the survivor receives a monthly check), recovery will be achieved by an actuarial reduction of the monthly payment on average of $1.28 per month over their lifetimes.
Retirees affected by the overpayment will receive a letter in July informing them of the amount of their 2011 adjusted gross benefit and the amount of their 2012 gross benefit reflecting the 2012 COLA effective July 1. The letter also will provide the amount that VRS will retain from their life insurance proceeds.
“VRS deeply regrets that this error occurred. However, we are attempting to make adjustments that will have the least impact on the retiree. In addition, we are instituting new safeguards into the annual COLA process that will prevent this from occurring in the future,” said VRS Director Robert P. Schultze.
Virginia statute requires a review of the Consumer Price Index-Urban (CPI-U) each year to determine if VRS retirees, beneficiaries and state employees on disability under the Virginia Sickness and Disability Program (VSDP) will receive a cost-of-living adjustment (COLA). As provided in the Code of Virginia, the COLA for current retirees is based on the first 3 percent increase in the CPI-U plus one-half of the next 4% of any additional increase.