Skip to Content


LATEST ISSUE | TABLE OF CONTENTS | BACK ISSUES | ABOUT VJE |  SUBMIT AN ARTICLE

Virginia Journal of Education


Ready to ‘Make a Deal’?

 

Here’s what the state is offering for your retirement behind Doors 1, 2 and 3.

 

Thanks to some changes made by the General Assembly, many VEA members now have a “Let’s Make a Deal” kind of choice about their retirement to make by this April 30. Our advice? If you have a pretty good deal with what you know is behind Doors Number 1 and 2, we don’t recommend risking it with a shot at the far-less-predictable deal behind Door Number 3.

If you had five or more years of service in Virginia public schools on January 1, 2013, you currently have what’s behind Door Number 1: a traditional pension plan.

If you were hired after July 1, 2010 or had less than five years of service on January 1, 2013, you currently have what’s behind Door Number 2: a slightly different but still traditional pension plan.

Anyone hired after January 1, 2014 automatically get what’s behind Door Number 3: a plan that combines a traditional pension plan and a 401K-like plan called a 457.

If you’re currently in Plans 1 or 2, you have the option of switching to Plan 3 until April 30.

However, keep this in mind: With Plans 1 or 2, your retirement benefits are predictable and guaranteed. Plan 3 shifts the investment risk to you, and your benefits will be largely dependent on how well you invest and how well the stock market does during your career.

Here’s a rundown of Door Numbers I, 2 and 3:


Plan 1—Traditional Pension

• Available to educators with 5 or more years of service as of January 1, 2013.

• Provides full retirement benefits at age 65, or after 30 years of service if you’re at least 50 years old.

• You can retire earlier, at age 50 with 10 years of service, but you’ll get reduced benefits.

• Here’s how your benefits will be calculated: Your highest salary during 36 months of consecutive service, times a multiplier of .017, times years of service. For example, if the average of those 36 months is $75,000, multiply it by .017, which equals 1,275. Then multiply your 30 years of service, for a total annual benefit of $38,250.

• The benefit remains for your lifetime, and the ups and downs of the stock market don’t affect it. VRS bears the investment risk.

• Inflation shouldn’t be a big problem—there is an automatic COLA (cost of living adjustment).

• You are eligible for disability retirement if you become completely disabled.  Eligibility starts the day you walk in the door.

Plan 2—Traditional Pension

• Available to educators hired after July 1, 2010 or those with less than five years of service as of January 1, 2013.

• You can’t retire until your age plus years of service equals at least 90, or you reach full Social Security retirement age (either 66 or 67, depending on year of birth).

• To retire early, you must be at least 60 and have at least 5 years of service.

• Benefits in this plan are calculated using the highest-salaried 60 months of consecutive service and a multiplier of .0165. For example, if the average of those 60 months is $50,000, multiply it by .0165, which equals 825. Then multiply your 30 years of service, for a total annual benefit of $24,750.

• Again, the benefit is life-long and VRS bears the investment risk without affecting your benefit.

• The COLA and disability provisions are the same as Plan 1.

Plan 3—Hybrid Plan

• Required for educators hired after January 1, 2014. Plan 1 or 2 educators may choose it.

• This plan is part traditional pension, part 457 (similar to 401K).

• Educators can choose this plan between January 1 and April 30, 2014. Decisions are irrevocable.

• You can’t retire until your age plus years of service equals at least 90, or you reach full Social Security retirement age (either 66 or 67, depending on year of birth).

• To retire early, you must be at least 60 and have at least 5 years of service.

• The money you put into the 457 plan is yours whenever you leave or retire. After four years of service, you’re also entitled to 100 percent of the employer contribution.

• You contribute 4 percent of your salary to the traditional pension and 1 percent to the 457. If you contribute more, your employer must match the first 1 percent. The way this plan is set up, you can contribute a maximum or 5 percent with a 3.5 percent match from your employer.

• Benefits from the traditional pension part of the program are calculated using the highest-salaried 60 consecutive months of service and a multiplier of .010. For example, if the average of those 60 months is $50,000, multiply it by .010, which equals 500. Then multiply your 30 years of service, for a total annual benefit of $15,000.

• There’s no way to accurately predict how the funds in your 457 account will do—you, not VRS, bears this investment risk.

• The traditional pension plan benefits last for life; the 457 funds last until they run out.

• COLA only on traditional pension portion – so if the benefit is lower, so is the COLA.

• No disability retirement plan.  There are short- and long-term insurance plans that replace part of your salary, but you’re not eligible until you’ve worked with same employer for a year.

Plans 1 and 2 clearly offer more predictability and security. Both of those plans can guarantee something close to 50 percent of your salary. The Hybrid Plan offers a guarantee of approximately 30 percent of your salary. It’s also fair to say that it could prove to be more lucrative, but you must consider carefully if you’re willing to take that kind of risk.


TAKE ACTION

Virginia Capital

Become a Cyberlobbyist
Sign up now!



Stay in touch with VEA and your fellow members.


Check out VEA and NEA Member Benefits savings programs.


Embed This Page (x)

Select and copy this code to your clipboard