This page is an archived HR news item and may not reflect current university policies or procedures. Items with older posting dates may contain links to web pages that may be expired. References to individuals or groups may or may not be current or valid.

2011 Budget and VRS-Related Legislation

Posted: April 13, 2011

From: Susan Carkeek, Vice President and Chief Human Resources Officer
Date: April 13, 2011
Subject: 2011 Budget and VRS-Related Legislation

To University staff and faculty:

U.Va. employees paid close attention to Virginia’s recent legislative session, which featured a number of proposals regarding retirement programs for state employees. The legislative session is now complete, and the General Assembly and the Governor have approved a budget that includes a 5 percent pre-tax contribution to VRS retirement funds, offset by a 5 percent salary increase to base pay, for those enrolled in VRS before July 1, 2010.

To help you understand these changes and to answer your general retirement questions, University Human Resources is planning a retirement and financial planning fair on Monday, April 25, from 9:00 a.m. to 1:30 p.m. at Alumni Hall. VRS Director Robert Schultze will be there to answer questions on the effect of the legislation, along with VRS staff and representatives from our other vendors that can offer general retirement information (see the full agenda).

The budget specifically calls for the contribution and raise to take effect on June 25, 2011. In order to comply with the legislation, U.Va. will implement both the raise and the contribution for those paid biweekly for the pay period beginning June 20, 2011, with the raise and contribution appearing in the biweekly pay check dated July 8, 2011. The raise and contribution will take effect on June 25 for those paid monthly, and appear in the monthly check dated August 1, 2011.

There are no changes to the Optional Retirement Plan (ORP)’s employer contribution rates, and other proposals and amendments regarding an ORP did not pass.

An issue summary and FAQs, below, should answer most of your questions. You can also email questions to the HR Service Center at AskHR@virginia.edu or call 982.0123 for more information.

Sincerely,

Susan Carkeek
Vice President and Human Resources Officer

Summary:

U.Va. faculty and staff are covered by one of two retirement plans: the Virginia Retirement Plan (VRS), a defined benefit plan that is open to all state employees, or the Optional Retirement Plan (ORP), a defined contribution plan that is open only to Faculty and some University Staff employees.

The Virginia Retirement System currently has a reported $17 billion shortfall. The VRS underfunding has been attributed to investment performance and to the state’s contributing less than what has been recommended.

In 2010, as part of the effort to balance the budget, the state temporarily diverted some of its employer contribution from VRS to the state General Fund, reducing the employer contribution to VRS from more than 6 percent of an employee’s salary to 2.13 percent.

As part of his overall budget presentation to the General Assembly on Dec. 17, Gov. McDonnell proposed how the state might address this critical financial issue. The governor called for certain state employees to contribute 5 percent of their pre-tax pay to help fund the retirement plan. To partially offset the employee contribution, he also called for a 3 percent salary increase for VRS members.

The General Assembly approved a budget with similar provisions to the Governor’s proposal: a 5 percent pre-tax contribution to the VRS and a 5 percent salary increase for those VRS members. This is the first time in 27 years that long-time state workers are being asked to share in funding Virginia’s retirement plan. Even with these changes, there remain significant concerns about the appropriate funding level to keep the plan fiscally sound. The Governor’s proposal also included changes to the Optional Retirement Plan (the defined contribution plan), notably a reduction in the employer contribution from 10.4 to 8.5 percent. This proposed change was not carried forward in the approved budget.

The Governor has not proposed any changes for members of the VRS or the ORP who were hired on or after July 1, 2010. They already contribute 5 percent to their plans.

The Governor reviewed all legislation passed by the General Assembly during the regular session, including the budget containing these provisions affecting VRS. He could sign or veto all or part of the budget, or recommend amendments, which he chose to do, notably including an amendment mandating the creation of an ORP for state employees. On April 6, the General Assembly reconvened to consider the amendments proposed by the Governor, and passed the budget with the “5 and 5” for VRS participants hired before July 1, 2010. No other changes, including changes to the ORP, were approved.

At U.Va. there are 6,310 employees (4,970 staff; 383 faculty; and 957 Medical Center staff) in VRS who are affected by this legislation.

FAQs:

Q. What Do Defined Benefit and Defined Contribution Mean?

A. A defined benefit plan pays a set benefit based on a retiree’s years of service, age and average annual salary. A defined contribution plan is based on contributions that are invested; the value of the plan depends on the earnings on those investments and can go up or down depending on investment gains or losses.

Q. Why Has the Legislature Passed this Change?

A. The Virginia Retirement System currently has a reported $17 billion shortfall. The VRS underfunding has been attributed to investment performance and to the state’s contributing less than what has been recommended. In 2010, as part of the effort to balance the budget, the state temporarily diverted some of its employer contribution from VRS to the state General Fund, reducing the employer contribution to VRS from more than 6 percent of an employee’s salary to 2.13 percent.

Even with the approved changes, there remain significant concerns about the appropriate funding level to keep the plan fiscally sound.

Q. How Does this Legislation Affect Me if I Am in VRS?

A. If you were hired after July 1, 2010, there is no change to your retirement contribution; you are already contributing 5 percent. The new legislation does not affect you.

VRS participants hired before July 1, 2010 will be required to pay the 5 percent member contribution, effective June 25, 2011. This contribution has been paid by the University since 1983. The contribution will be taken out pre-tax, but it is not exempt from Federal Insurance Contributions Act tax (known as FICA). This tax funds Medicare and Social Security.

Q. How Will this Legislation Affect Me if I Am in the ORP?

A. This legislation does not affect you. While the University administers the ORP, the contribution rates for both the ORP and VRS are established by the state. The governor originally proposed a reduction in the employer contribution rates for the ORP (from 10.4 to 8.5), but no changes were enacted by the legislature. The employer contribution will remain 10.4 for those hired before July 1, 2010, and 8.5 with a University-funded supplement to 8.9 percent for those hired after July 1, 2010.

Q. Will Salaries Increase to Cover these New Retirement Expenses?

A. Yes. The legislation enacts a 5 percent salary increase for VRS members hired before July 1, 2010, to offset the newly required retirement contribution, effective June 25, 2011. There is no salary increase proposed for those in VRS who were hired after July 1, 2010, or for ORP participants.

The legislation does not provide for the 2 percent bonus mentioned in the original (Dec. 2010) budget proposal.

Q. How Will this Affect My Take-Home Pay?

A. Human Resources has developed three examples to show you how your pay will be affected by this change. Please note: if you are paid biweekly, you will see the VRS contribution on 24 of the 26 pay periods. There are two limited deduction checks per year, when there will not be a VRS deduction.

Q. What about U.Va. Medical Center VRS Members?

A. Employees in the Medical Center who are in VRS will get the 5% increase and make the 5% contribution, as same as Academic Division employees.

Q. Will the Proposal Affect My Out-Of-Pocket Annual Limits for My Tax-Deferred Savings Plan?

A. No.

Q. Has the Cash Match on My Tax-Deferred Savings Plan been Restored as Planned?

A. Yes. In 2010, the state had reduced the cash match on the Tax-Deferred Savings Plan from $40 per month to $20 for one fiscal year. This provision was due to expire and revert to $40 on July 1, 2011. The 2011 General Assembly did not make any changes to this plan.

Q. When Will this Legislation be Implemented?

A. The budget specifically calls for the contribution and raise to take effect on June 25, 2011. In order to comply with the legislation, U.Va. will implement both the raise and the contribution for those paid biweekly for the pay period beginning June 20, 2011, with the raise and contribution appearing in the biweekly pay check dated July 8, 2011. The raise and contribution will take effect on June 25 for those paid monthly, and appear in the monthly check dated August 1, 2011.

Q. Where Can I Get Help Understanding More about My Retirement?

A. University Human Resources offers one-on-one assistance with understanding your retirement benefit by appointment and for walk-ins. You can email questions to the HR Service Center at AskHR@virginia.edu or call 982.0123 for more information.

In addition, University Human Resources is planning a retirement and financial planning fair on Monday, April 25, from 9:00 a.m. to 1:30 p.m. at Alumni Hall. VRS Director Robert Schultze will be there to answer questions on the effect of the legislation, along with VRS staff and representatives from our other vendors that can offer general retirement information (see the full agenda).

This page is an archived HR news item and may not reflect current university policies or procedures. Items with older posting dates may contain links to web pages that may be expired. References to individuals or groups may or may not be current or valid.