Virginia Teacher Retirement
Virginia teachers have always been the backbone of Virginia’s educational system. Teachers may be eligible for retirement benefits depending on the age and the amount of time they have spent teaching. Virginia Teacher Retirement Systems provides information about how to calculate your eligibility, what you will receive, and how long you will have to wait before receiving it.
To ensure lifetime benefits, teachers in Virginia must enroll with the VRS and contribute to a plan that provides fixed monthly pension funds.
In order to keep the system strong, all participating employees contribute 5% of their monthly salaries to the pension fund. VRS members currently contribute this percentage on a pre-tax salary reduction basis and will accrue 4% interest annually compounded on June 30th.
There are four things to choose from when you retire. These include:
- Basic Benefit
This option is calculated based on your age, total years of service credit, and average final compensation. The formula is:
The Basic Benefit option is computed based on your age, how many years you worked, and your average final compensation.
1.7% of your average final compensation X service credit years / 12
For example, if you worked 30 years, earning an average final salary of $65,000, your monthly benefit would be $2,762.50.
- Survivor Option
If you choose this option, then your beneficiary will receive a monthly benefit after your death. Your percentage of the total amount is transferred to them as well.
- Partial Lump-Sum Option Payment
A one-time partial lump sum payment is available for those who work beyond the retirement age, but this option will lower your monthly benefit payments.
- Advance Pension Option
Enlarge your monthly benefit for a short time period. When the period is over, you will receive an even lower monthly benefit until retirement ends.
You can get full retirement benefits if you are 65 or older with at least five years of work. Or if you are 50 and have at least 30 years of work, then you can too.
How Does Teacher Retirement Work in Virginia?
In Virginia, all teachers and other state employees are a part of the Virginia Retirement System (VRS). The VRS was founded in 1942 and is considered to be one of the best retirement plans in America.
However, new teachers in Virginia are not automatically enrolled in a defined benefit pension plan.
New teachers in Virginia aren’t automatically enrolled into a defined benefit (DB) pension plan. Instead, they are part of the hybrid retirement system that combines traditional DB and DC plans elements to create something new for them. Virginia’s teacher DB pension is identical to that of other states. Although it only comprises a portion of the hybrid plan, the basic structure is still there.
Unlike other retirement funds, it is not the teacher’s contributions or those made by the state or school district that determines how much the pension will be worth. The value of a worker’s pension is not based on the returns from their investments. Instead, benefits are determined by a formula that uses years of experience and final salary as factors in determining how much they receive each month after retiring.
Teachers who were hired prior to 2014 would have two options for pension plans, either Plan 1 or Plan 2, unless they elected to join the hybrid plan. Teachers who are hired before 2010 and vested by the end of 2013 are in the Plan 1 pension fund, except they are selected to join the Hybrid plan after it was created. Teachers hired between the years 2010 and 2013 are in the Plan 2 pension fund unless they opted to join a different plan, called Hybrid.
How Does Virginia’s Hybrid Plan Work?
In 2014, teachers hired since then and those who elected to join Virginia’s Hybrid plan contributed at least 4 percent annually towards the defined benefit portion of the fund. Employer contributions are determined each year actuarially by an actuary.
When a teacher retires, the total amount of their DB portion of the plan is determined by a formula depending on years of experience and final average salary.
There also is a DC part in addition to the DB part of the Hybrid Plan. Each year teachers contribute 1% of their salary or mandatory contribution, and the employer matches that amount by contributing an additional 1%.
Teachers also have the ability to join a supplemental 457 plan that they can voluntarily contribute up to an additional 4%, and their employer will match it for another 2.5%. This option is voluntary on both sides, though, so make sure you know what your options are before signing up.
The Hybrid plan allows teachers to vest in the DB portion after five years of service. The rules for the DC component are different. Teachers are gradually given part of the plan. After two years, you are 50% vested. After three years, you are 75% vested. After four years, you are 100% vested.
If a teacher resigns or moves out of Virginia after two years, they cannot take any of their employer’s DB contributions. But they can still take all their own contributions and half of the DC contributions.
Who Qualifies for the Pension Portion of Virginia’s Hybrid Plan?
Most states require a teacher to work for many years before they can receive a pension when they retire. If you are a new hire and want to participate in the hybrid fund, there is a five-year vesting period. Educators who qualify for the pension after five years of service may find that it is not worth all that much.
As a result, educators have to wait until they are older and can collect retirement benefits. The state sets certain windows when teachers can retire with benefits based on age and years of experience. New teachers in Virginia can retire with full benefits when they reach their normal Social Security retirement age at five years of experience, or if the teacher’s age and years combined equal to 90 with a minimum of five years.
Virginia permits early retirement from age 60 once a teacher has accrued at least five years of experience. However, teachers having that option will have their benefits lessened.
How Much Does Virginia’s Pension System Cost?
Teachers and their employers contribute to the plan. Contribution rates are set by state legislature, fluctuating year-to-year. In 2018 teachers contributed 4 percent of salary to the pension portion while the employer contributed 13.36% of each teacher’s salary, which changes from time to time.
However, not all of the money that teachers contribute is for benefits. For example, the full amount of a teacher’s contribution is for benefits, but the state only contributes 4.5 percent of that amount to those benefits. The 8.86 percent that remains goes towards paying down the pension plan’s unfunded liabilities.
Virginia’s hybrid teacher retirement system provides the greatest benefits to teachers who stay the longest with most state pension funds. However, this is also a disadvantage for those with shorter careers in teaching and leaves everyone else with inadequate amounts of money when they retire.
Virginia Teacher Retirement Systems is a great place for teachers to retire. Virginia Teacher Retirement Systems (TRS) is a state-run pension fund that provides retirement income to retired teachers. They offer retirement plans, disability coverage, and other benefits that are perfect for educators who want to take their skills into the next phase of life.