Employer Update

VRS will simplify the way employer contributions are calculated and paid for the Hybrid Retirement Plan, beginning July 1, 2024.

With the creation of the hybrid plan in 2014, employers began paying VRS a single, blended contribution rate, consisting of the VRS board-certified defined benefit rate for all plans, mandatory defined contributions, and an estimate of defined contribution plan matching contributions, based on employees’ voluntary contributions.

The variable nature of the defined contribution component—specifically employee voluntary contributions—has created plan administration and account reconciliation challenges for employers and VRS.

A New Path Forward

Employers will begin to administer hybrid plan contributions in the same way they currently administer contributions to other deferred compensation plans, such as the Commonwealth of Virginia 457 Plan.

• The rates employers pay for Plan 1, Plan 2 and the defined benefit component of the hybrid plan will be the same.
• The employer contribution to the defined contribution component will continue to vary based on individual member election of voluntary contributions.

Plan Now for Possible Updates to Your Payroll System

With the move away from the single blended rate, payroll withholding for the defined contribution component will be handled independently from the defined benefit component.

Depending on how your payroll system is structured, programming may be required to remove the link between the defined benefit and defined contribution employer contributions. You may also need to update your reconciliation and reporting processes to be ready for the new process in July 2024.

Now is the time for your budget and finance teams to evaluate the impact of this change on your payroll system and schedule any programming changes needed to separate the contribution rates.

The defined contribution component will no longer be included as part of the employer confirmation and snapshot process, except for adjustments related to any periods before July 2024. Historical defined contribution component amounts will continue to be visible for all snapshots that occurred before July 2024 and will be maintained in the member’s historical record.

VRS is working with MissionSquare Retirement to develop additional reporting aids to assist employers with administering the defined contribution component independently from the defined benefit component.

Next Steps

VRS will provide updates and other support throughout the pre-implementation process over the next year. Look for invites to upcoming information sessions that will further outline process changes related to this legislation.

Ultimately, the separation of the defined benefit and contribution rates should reduce payroll reconciliation issues and other administrative burdens on VRS-participating employers.

We look forward to partnering with you to ensure this change goes smoothly.