If you suffer an occupational illness or injury on the job and the cause is determined to be compensable under the Virginia Workers’ Compensation Act, you may be eligible to retire on work-related disability. VRS does not determine whether your disability is work-related; you must file a claim under the Act. If you apply for work-related disability retirement, you must include a copy of the letter from the Virginia Workers’ Compensation Commission approving your claim or a copy of a workers’ compensation award letter as well as an accident report, if applicable. Contact your human resource office for assistance with applying for workers' compensation.
Work-Related Disability Benefit Calculation
If you retire on work-related disability, you will receive a refund of your member contribution account balance in addition to a monthly benefit. The monthly benefit is calculated first based on your eligibility for Social Security disability benefits:
If you qualify for Social Security disability benefits, the work-related guaranteed benefit will be equal to 50% of your average final compensation . You will receive the guaranteed benefit or the full VRS formula amount described in “Non-Work-Related Disability Retirement Benefit,” whichever is higher.
If you do not qualify for Social Security disability benefits, the guaranteed benefit will be equal to 66⅔% of your average final compensation. You will receive the guaranteed benefit or the full VRS formula amount, whichever is higher.
The benefit amount is then offset by any workers’ compensation benefits you receive:
If your workers’ compensation benefit is equal to or greater than your VRS disability retirement benefit, you will not receive the VRS benefit unless your workers’ compensation benefit is reduced or ends.
If your workers’ compensation benefit is less than your VRS disability retirement benefit, VRS will pay the difference between the two benefits to bring you to your VRS benefit amount.
If you receive a lump-sum workers’ compensation settlement, VRS will determine the monthly value of the settlement and then offset your VRS benefit accordingly. Any offset for a settlement begins on the first of the month following the date that the signed settlement order is entered by the Workers’ Compensation Commission. When the settlement is received, it is calculated to determine the date VRS can begin paying the monthly benefit. Any fees such as legal and medical will be deducted from the settlement. If there is a remaining balance after the fees are deducted, you may not receive a disability retirement benefit from VRS for a number of months. VRS will offset the VRS monthly benefit for the remaining months until the settlement end date. If there is no remaining balance after fees have been deducted, VRS will begin paying the full monthly VRS benefit.
Important note if you retire on work-related disability: If you do not comply with the provisions of the Virginia Workers’ Compensation Act and your workers’ compensation benefits end, your VRS disability retirement benefit will continue to be offset by the workers’ compensation amount. If you are notified of a change or an end to your workers’ compensation benefits, fax or mail a copy of the notification letter to VRS as soon as possible.
Taxes and the Work-Related Disability Retirement Benefit
Refunds of pretax member contributions and interest are subject to income taxes. The Internal Revenue Service (IRS) also may impose an additional 10% tax penalty if you receive a refund before age 59½; there are exceptions to this rule. To defer taxes, the refund can be rolled over to an Individual Retirement Account (IRA) or another qualified plan. For more information, read the IRS 402(f) - Special Tax Notice - VRS Defined Benefit Plans.
If you retire on work-related disability with the guaranteed benefit, your benefit will not be subject to federal or state income taxes. The work-related disability benefit based on the VRS formula amount is subject to income taxes for any benefit amount over the guaranteed benefit. For more information, contact a tax advisor or the Internal Revenue Service (IRS) toll-free at 800-829-1040 or visit the IRS website.