VRS Hybrid Retirement Plan
Features and Benefits
Version 02/15
Introductions
Virginia Retirement System
&
ICMA-RC
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Today’s Agenda
Learn About Your Plan
Your Investment Options
Benefit Payments & Distribution Options
Other Things to Consider
Accessing Your Account & Resources
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Learn About Your Plan
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Who’s eligible?
New members with no previous VRS service credit and a
membership date on or after January 1, 2014:
Eligible Members
Ineligible Members
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State employees
• State Police Officers’ Retirement
School division employees
System (SPORS) members
Political subdivision employees
• Virginia Law Officers’ Retirement
Judges appointed or elected to
System (VaLORS) members
an original term
• Political subdivision members who
• New members who are eligible for
are covered by enhanced benefits
ORP must elect ORP or Hybrid
for hazardous duty employees
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What is the Hybrid Retirement Plan?
Combines the features of a defined contribution plan and a
defined benefit program:
Defined Benefit (DB)
• Provides the foundation of your
future retirement
• Pays a monthly retirement benefit
• VRS manages the investments
and related risk for this
component
Defined Contribution (DC)
• Provides a tax-deferred savings
plan
• Pays a retirement benefit based
on contributions to the plan and
the investment performance of
those contributions
• You manage the investments
and related risk for this component
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Contributions
Hybrid members make two types
of contributions to the hybrid plan:
• mandatory contributions, which
all members are required to make;
• and additional voluntary
contributions that you may
choose to make.
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Contributions
Employee
Employer
Administrator/
Record Keeper
DB
Mandatory
Contribution
4%
Total Employer Rate
(less employer DC
contributions)
VRS
DC
Mandatory
Contribution
1%
1%
ICMA-RC
Up to 4%
additional
contribution
100% match for
your first 1%
+
50% match on any additional
voluntary contributions
ICMA-RC
DC
Voluntary
Contribution
and Match
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Defined Contribution Component
The defined contribution component includes two plans:
Hybrid 401(a) Cash Match Plan
• You contribute a
mandatory 1% of your
creditable compensation
each month to your 401(a)
account
• Your employer contributes
a mandatory 1%, plus
matching contributions on
any voluntary contributions
you make into the Hybrid
457 Deferred Compensation
plan
Hybrid 457 Deferred Compensation Plan
• Accumulate additional voluntary
contributions on a tax-deferred basis
• Maximum amount for voluntary
contributions is 4%
• Your employer must match the first
1% of your voluntary contribution with a
corresponding contribution of 1% of your
creditable compensation
• Each of your additional 0.5% increases
will be matched by your employer with a
0.25% contribution
• Maximum amount for match is 2.5%
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How Much Can I Contribute?
* Voluntary contributions can be changed on a quarterly basis
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Benefits of Making Voluntary
Contributions to Your Hybrid Account
For illustrative purposes only and based on a monthly income of $3,000; assumes bi-monthly employee contribution made on 15th and
30th of each month and a 6 percent average annual return after 30 years. The final account balance does not account for plan fees or
expenses, which would reflect lower net returns. Investment return and principal value will fluctuate, so when shares are redeemed
they may be worth more or less than the original cost.
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Benefits of Increasing
Contributions to the Hybrid
For illustrative purposes only and based on a monthly income of $3,000; assumes bimonthly employee contribution made on 15th and
30th of each month and a 6 percent average annual return after 30 years. The final account balance does not account for plan fees or
expenses, which would reflect lower net returns. Investment return and principal value will fluctuate, so when shares are redeemed they
may be worth more or less than the original cost.
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Why Should You Save?
• You might need 70-90% of your working
income for each year in retirement.*
• Once you reach 65, there’s a 25% chance
you or your spouse will live until age 96.**
• Retirement income from Social Security
depends on salary during working years
– 2012 average annual benefit — about
$14,760
• Income from VRS pension benefit
depends on salary, age and years of
service
*Source: Aon Consulting’s 2008 Replacement Ratio Study: A Measurement Tool for Retirement Planning.
**Source: Annuity 2000 Mortality Tables — Transactions, Society of Actuaries, 1995–1996 Reports.
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Personal Savings —
Role in Retirement
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Starting Early vs. the Cost of Waiting
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Benefits of Tax-Deferred Savings
Before Tax
After Tax
Annual Pay
$30,000
$30,000
Before Tax
Contribution
-1,800
N/A
Income Subject to
Taxes
28,200
30,000
Federal Taxes*
-7,050
-7,500
Net Income
21,150
22,500
After-Tax Contribution
N/A
-1,800
Spendable Income
$21,150
$20,700
*Assumes a flat 25% tax bracket without the standard deduction. Taxes due upon withdrawal.
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Rollovers
• Incoming rollovers are allowed into the Hybrid
457 Deferred Compensation Plan
• You can rollover from the following plan types:
– 401(a) plans other than the
Hybrid 401(a) Cash Match Plan
– 401(k) plans
– 457(b) plans
– 403(b) plans
– Federal Thrift Savings Plan
– Traditional Individual Retirement Account (IRA)
• Incoming rollovers are not permitted into the
Hybrid 401(a) Cash Match Plan
Note: Employee must otherwise be eligible for a distribution from the plan they are requesting the rollover out of.
*If you rolled funds from another retirement plan into your Hybrid 457 Deferred Compensation Account, you may withdraw those funds
while you are still employed. Depending on the plan type, withdrawals made prior to age 59½ may be subject to a 10% penalty, plus state
and federal income tax withholding.
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Additional Savings Opportunities
Your employer may also offer a supplemental plan, such as a 457 or 403(b)
You must make the maximum 4% voluntary contribution to the defined
contribution component of the Hybrid Retirement Plan prior to
receiving an employer match on your contributions to the
supplemental plan
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Your Investment Options
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Asset Classes
• Cash Equivalents and Stable Value Investments
– Short-term, highly liquid securities that pay interest
– Seek to preserve the value of your investment
– Returns are generally low and may not outpace inflation
• Bonds
– Loans to an organization in exchange for interest payments
– May offset higher risk of stocks in aggressive investment portfolio
– May help keep pace with inflation in conservative investment portfolio
• Stocks
– Shares of ownership in a company
– Highest potential for growth
– Higher degree of risk
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Investment Paths
•
Investment options organized into three pathways
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Designed to make it easier for you to implement your investment decisions
•
Mix and match investment options within each path
•
Help you meet your objectives, risk tolerance and overall investing style
Do-It-For-Me Path
Help-Me-Do-It Path
Do-It-Myself Path
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Do-It-For-Me Path
• Includes target-date funds for participants who would
like a portfolio that's already diversified.
• Select funds based on your projected retirement date
and individual needs.
Retirement Portfolio
Target Date 2040 Portfolio
Target Date 2020 Portfolio
Target Date 2045 Portfolio
Target Date 2025 Portfolio
Target Date 2050 Portfolio
Target Date 2030 Portfolio
Target Date 2055 Portfolio
Target Date 2035 Portfolio
Target Date 2060 Portfolio
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Help-Me-Do-It Path
• Offers a carefully selected menu of funds for those who
prefer to take a slightly more active role in investing.
Money Market Fund
Small/Mid-Cap Stock Fund
Stable Value Fund
International Stock Fund
Bond Fund
Emerging Markets Stock Fund
Inflation-Protected Bond Fund
Global Real Estate Fund
High-Yield Bond Fund
Virginia Retirement System
Investment Portfolio
Stock Fund
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Do-It-Myself Path
• Features a self-directed brokerage account for those
who wish to manage investments without assistance.
• Allows you to select from thousands of publicly-traded
mutual funds, exchange traded funds (ETFs) and
individual securities, in addition to your Plans’ core
investment options.
• The SDBA is for knowledgeable investors who
acknowledge and understand the risks and costs
associated with the investments contained in the SDBA.
• When transferring assets to your brokerage account,
you are required to leave at least $2,500 in your core
investments other than the Virginia Retirement System
Investment Portfolio.
Self-Directed Brokerage Account
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Learn About Your Plan ―
Fee Structure
Record
Keeping Fees
Investment
Management
Fees
(Expense
Ratios)
• A record keeping fee of $2.54 will be deducted
from your account on a monthly basis
($30.50 per year)
• If you participate in more than one
Commonwealth of Virginia plan, only one annual
fee of $30.50 will be deducted from your account.
If you have a balance in more than one
Commonwealth of Virginia defined contribution plan
• Each investment option includes investment
management fees (vary by option)
• Fees can be found in the Investment Option
Performance report at www.varetire.org/hybrid
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Benefit Payments and Distribution Options
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Defined Benefit Component
• You receive a monthly benefit at retirement
• You must be vested (have five years of creditable
service) and meet age and service requirements
• The benefit is based on a formula:
Average Final Compensation
x Retirement multiplier
x Total years of creditable service
Annual benefit amount
Defined Benefit Retirement Eligibility
Reduced Retirement
Age 60 with at least
5 years of service
Unreduced Retirement
Age + Service Credit = 90
Social Security Normal Retirement
Age with 5 years of service
Defined Benefit Retirement Options
Basic Benefit
Survivor Option
Partial Lump-sum Option Payment
Advance Pension Option
Deferred Retirement
If you leave your member contributions and
interest with VRS and become a deferred
member, you will retain your VRS membership
and eligibility for any future benefits
Vested members may be eligible for a
future retirement benefit if you meet
age and service requirements
Refund Implications
If you separate from your employer, you may take
a refund of your defined benefit contributions
If you take a refund of the defined benefit
member contributions:
• You lose VRS membership
• You lose eligibility for any future VRS benefits
• You forfeit any non-vested employer
contributions in the defined contribution
component
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Defined Contribution Vesting
Member Contributions: You are immediately vested in any
funds that you contribute to the hybrid plan
Employer Contributions: You must be vested to be eligible to
take a distribution of employer contributions
Defined Contribution Vesting Schedule
After 2 years of creditable service
50%
After 3 years of creditable service
75%
After 4 years of creditable service
100%
If you aren’t 100% vested when taking a distribution, then you’ll forfeit
any non-vested employer contributions based on the vesting schedule
Taking a distribution from the defined contribution component does
not require you to take a refund from the defined benefit component
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Defined Contribution
Distribution Options
What are my distribution options?
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•
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Leave money in the plan
Full or partial lump sum
Periodic payments
A partial lump sum distribution combined with periodic payments
Purchase an annuity with all or a portion of your account balance
Roll over all or a portion of your account balance to another
employer’s plan or to another qualified plan that accepts rollovers
such as a traditional Individual Retirement Account (IRA)
• Funds become taxable upon distribution from the plan
• Most options can be changed upon request
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Defined Contribution Distributions
• Leave money in the plan
• Upon separation from service, you can
take a distribution from your Hybrid
401(a) Cash Match Plan and/or your
Hybrid 457 Deferred Compensation Plan
• In-service distributions are only allowed
from rollover assets from the Hybrid 457
Deferred Compensation Plan
• Hybrid 457 Deferred Compensation Plan
– No early withdrawal penalty for
distributions
• Hybrid 401(a) Cash Match Plan
– Withdrawals prior to age 59½ may be
subject to the IRS 10 percent penalty tax
• Other exceptions may apply
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Other Things to Consider
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Purchase of Prior Service Credit
As your service increases,
your benefit increases
Types of Service
Active duty military service
Federal Service
Public service
Non-covered service
Birth or adoption leave
Educational leave
No-cost military leave
Service not reported while receiving WC
Refunded service
Cost to Purchase Service
Approximate
normal cost
1 year window
Actuarial rate
Beyond 1 year window
Exceptions:
Refunded service – 4%
Military leave – no cost
Purchase Methods
Approximate
normal cost
1 year window
After-tax payroll deduction,
pre-tax salary reduction
(if offered) and lump sum
Actuarial rate
Beyond 1 year window
Lump sum
VSDP
Sick leave
Family and personal leave
Short and long-term disability
Return-to-work programs
Long-term care
VLDP
Short and long-term disability
Long-term care
Return-to-work programs
Your employer may offer a
comparable plan
Transferring Between Employers
If you move between...
then you have...
state
state
(with no break in service)
no new waiting period
state
state
(with a break in service)
one year waiting period
state
school/political subdivision
one year waiting period
school/political
subdivision
school/political subdivision
one year waiting period
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Long-term Care
VSDP and VLDP Long-term
Care Plans
Commonwealth of Virginia
Voluntary Group Long-term
Care Insurance Program
Basic Life Insurance
Natural death benefit
Accidental death benefit
Optional Life Insurance
Coverage is available for yourself,
your spouse and dependent children
Death in Service
Non-Work Related (vested):
Monthly benefit or refund
Non-Work Related (non-vested):
Refund
Work Related:
Monthly benefit and refund
Accessing Your Account and Resources
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Hybrid Retirement Plan Website
www.varetire.org/hybrid
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myVRS Log-In
myVRS Account Home
Hybrid Retirement Plan Website
www.varetire.org/hybrid
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Account Access –
Select Your Plan
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Account Access ―
My Account
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Account Access ―
Investments
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Contact Information
VRS
Defined Benefit
1-855-291-2285
Representatives available
8:30 a.m. – 5:00 p.m.
[email protected]
VRS Retirement Counseling Center:
1111 East Main Street
Richmond, VA 23219
8:30 a.m. – 4:00 p.m.
ICMA-RC
Defined Contribution
1-VRS-DC-PLAN1 (1-877-327-5261)
Select Option 1
Representatives available
8:30 a.m. – 9:00 p.m.
InvestorServicesCommonwealthofVirginia
@icmarc.org
Virginia Service Center:
919 East Main Street, Suite 1604
Richmond, VA 23219
8:30 a.m. – 5:00 p.m.
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Hybrid Retirement Plan Resources
General resources for defined benefit and defined contribution components
Hybrid Retirement Plan Website
www.varetire.org/hybrid
Hybrid Retirement Plan Handbook
www.varetire.org/hybrid
(click Publications)
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Hybrid Retirement Plan Resources
Additional resources for defined benefit and defined contribution components
Hybrid Retirement Plan Features
and Benefits Video Series
www.varetire.org/hybrid
(click Education)
Live and Recorded Webinars,
Videos, Regional Seminars and
One-on-One Sessions
www.varetire.org/hybrid
(click Education)
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Action Plan
Maximize voluntary defined contributions in the
Hybrid Retirement Plan
Consider enrolling in your employer’s 457 or
403(b) retirement savings plan(s)
Review your investment options periodically
Complete beneficiary designations
Consider purchasing service, if applicable
Consider long-term care insurance
Consider your life insurance needs
Thank You!
We welcome your questions.
Thank you!
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