VRS Making Changes to Purchase of Prior Service

Page updated on May 24, 2018 at 3:30 PM

VRS Making Changes to Purchase of Prior Service

The Virginia Retirement System (VRS) is making changes to the rules for purchasing prior service under VRS.  These changes may result in higher costs for employees purchasing or wanting to purchase service as well as fewer months of service eligible for purchase.  The new rules will go into effect on January 1, 2017, but employees who are affected may need to take action as early as September 1, 2016.

Some employees who have refunded service will find that waiting until 2017 to purchase service will let them purchase the service at a lower rate.  Employees with refunded service should log on to www.varetire.org and look for the PURCHASE OF PRIOR SERVICE ESTIMATOR to compare costs of purchasing service under the current rules and the new rules.  However, if you are in the midst of a purchase of service contract you will not be able to see the link and will need to call VRS at 888.827.3847 to compare the costs for you.

The changes can affect employees differently.  It is up to you to determine if the changes described in this document apply to you and what steps you need to take and when to purchase service either in 2016 or in 2017.

See information at the end of this document regarding webinars VRS will have during August – October.

1.Does This Change Apply to You?

This change may apply to you if: 

  • You worked for other government employers before being hired with the City and you will not receive a retirement benefit based on that service;
  • You are already purchasing prior service and have a payroll-deduct purchasing agreement contract that expires before January 1, 2017; or
  • You have refunded VRS service because you took a refund of contributions after you left the City or other VRS employers.

This change does not apply to you if:

  • You did not work for another government employer or you did not have eligible military service as described in the section below;
  • You already applied to purchase prior service, but you already received a letter from VRS indicating that you are not eligible to purchase service; or
  • You did work for another government employer or had military service and you applied to purchase that prior service, but you determined the cost was too much for you to purchase service (however, you might want to receive an updated Cost Letter to determine again whether you want to purchase the service).

2.What is VRS Prior Service?

Currently, VRS calls time worked for the following categories Prior Service.  That service may be eligible to be purchased under VRS, limited to four years under each category below, if you are not eligible for a pension from the employer based on that service:

  • time worked with the federal government;
  • time worked with a public employer such as a state, city, county, or smaller local jurisdictions as well as some multi-county/city agencies;
  • time served on active duty with the military services;
  • time served in the Peace Corps or AmeriCorps;
  • time employed with a VRS employer (City or other VRS employer) that was considered non-covered service because the employee was as a part-time, CETA grant-fund, temporary, or seasonal employee; and
  • refunded VRS service – i.e., VRS service that an employee forfeited because they received a refund of the member contributions paid to VRS for that service - can be repurchased.

VRS makes all decision and approves, or certifies, whether time worked for other government agencies, or any time described above, is eligible for purchase as Prior Service.

3.Why Purchase VRS Prior Service?

Purchasing Prior Service benefits you in several ways.  The purchased service counts toward the five years needed to be vested, service used to determine if you are eligible to retire, and service used to calculate your monthly pension amount.  Purchasing prior service allows you to retire earlier or with a larger monthly pension.  

4.How Do You Pay to Purchase Prior Service

Currently, some employees are able to have the cost deducted from their pay check.  Some employees make a lump sum payment from their personal savings, 457 Deferred Compensation Plan account, or other qualified plan.  However, beginning in 2017, all employees will be able to have the cost deducted from their paychecks.  Money from qualified plans are transfers, not withdrawals.  This means you will not be taxed when the money is transferred to VRS.  Be sure to coordinate with Pension staff before requesting your money.

5.What Should You Do Now?

If you believe you have eligible service that you can purchase under VRS, visit the appropriate VRS website:

The above links take you to the appropriate VRS webpage titled, Prepare Now for tomorrow.  The Hybrid webpage is different than the Plan 1 and Plan 2 webpage.  The Prepare Now for tomorrow webpage is the official VRS resource center on the changes that will be made on January 1, 2017.  You can find links on the webpage for:

  • General information on purchasing Prior Service;
  • Preview of the PPS (Purchase of Prior Service) Changes Chart;
  • Estimators; and
  • Information on webinars available during August through October 2016.

Employees with refunded VRS service should log on to www.varetire.org and look for the green box that is labeled PURCHASE OF PRIOR SERVICE ESTIMATOR.  Click on that box to find the tab COMPARE COST.  Click on the tab to determine if it will be cheaper to purchase the refunded service in 2017 rather than 2016.  You will not be able to see the tab if you are currently in a payroll-deduct purchase contract, but you can call VRS for the cost comparison information.  Call VRS at 888.827.3847 if you have any questions.

Please note that VRS has provided due dates on the Prepare Now for tomorrow webpage that may be later than the City due dates.  Also, VRS refers employees to call their Human Resources Department for assistance.  However, in Alexandria, the Pension Administration Division of Finance Department manages the retirement plans and assists employees with VRS matters.

6.What Should You Do if You Previously Applied But Never Purchased Prior Service?

Contact the Pension Division at retirement@alexandriava.gov to have an updated cost letter mailed to you.  Once you receive that letter you can discuss with Pension staff whether you want to purchase the service and how you will pay to purchase the prior service.

7.What Should You Do if You Are Already Purchasing Prior Service?

If you are in the middle of an Agreement to Purchase Service through Payroll Deduction you do not need to contact anyone if Pension already contacted you this year.  Contact the Pension Division at retirement@alexandriava.gov to request that your cost letter be updated.  If you are in the midst of an Agreement that will end in 2016, please email retirement@alexandriava.gov now.

Employees with refunded VRS service should log on to www.varetire.org and look for the green box that is labeled PURCHASE OF PRIOR SERVICE ESTIMATOR.  Click on that box to find the tab COMPARE COST.  Click on the tab to determine if it will be cheaper to purchase the refunded service in 2017 rather than 2016.  You will not be able to see the tab if you are currently in a payroll-deduct purchase contract, but you can call VRS for the cost comparison information.  Call VRS at 888.827.3847 if you have any questions.

8.What is the Window that VRS Mentions?

VRS gives employees a short period of time, called a window, to purchase or begin purchasing eligible service at a lower rate.  Employees who apply after that time can still purchase eligible prior service but will pay a higher cost.  VRS Plan 2 and Hybrid employees have a one year window from date of hire to purchase or begin purchasing prior service at the preferred rate.  VRS Plan 1 employees had a three year window from their date of hire to purchase or begin purchasing prior service at the preferred rate.  Purchases made after the end of the window will be at a much higher cost.

9.How to Apply to Purchase Prior Service?

  • Other Government Service:  Complete the VRS 26 Application for Purchase of Prior Service Credit if you are applying to purchase federal, state, or other local government services as well as Peace Corps or AmeriCorps time.  Complete page one of the VRS 26 and send the entire form (three pages) to your former employer benefits office to complete pages two and three.  The completed form can be mailed to VRS using the address in the upper left hand corner of the form.  You can also fax the completed pages to 804.786.9718.  Be sure to read all of the instructions.
  • Active Military Service:  Please email retirement@alexandriava.gov if you are applying to purchase active duty military service.  To purchase eligible active duty military service you will need to provide a copy of your DD214.  You will not be able to purchase active duty military service if that time will make you eligible for a retirement benefit.  However, active duty served in a military reserve may be eligible for purchase.
  • Non-covered service with the City:  If you are applying to purchase non-covered service with the City, i.e., time that you worked for the City as a part-time, grant-funded, CETA, temporary, or seasonal employee, please email retirement@alexandriava.gov and provide the dates for that time.  You are not eligible to purchase time when you were employed through a Temporary Agency or if you worked as a consultant. 
  • Non-covered service with another VRS employer:  See the section on “Other Government Service" above.

10.What Happens if You Do Not Take Action Before January 2017

You are still able to purchase service, but the cost may be greater and you may be limited to the amount of eligible prior service that you can purchase.

11.Does Service Purchased Under VRS Count Under the Supplemental Retirement Plan?

When you purchase prior service under VRS you will not also be purchasing that service under the Supplemental Retirement Plan.  The Supplemental Plan does not allow employees to purchase service under the Plan.  However, employees who go on active military duty service while employed with the City should contact Pension about pension service accrued while on active military duty.

12.Is There Additional Information Available?

This document is an excerpt of VRS information regarding purchasing prior service.  Refer to VRS webpage Prepare Now for tomorrow for full information.

Additionally, VRS has a recorded webinar available to view and will also have live webinars available for employees to view.  Go to the VRS Prepare Now for tomorrow webpage and look for the link on the right for Changes to Purchase of Prior Service Provisions Presentation.  You can click on the link to register to watch and listen to the recorded webinars from July 12, 2016 or you can register to attend any of the live webinars from your desk or home.  You can also join the Pension Division in City Hall Sister Cities 1101 to view the webinars on August 10, September 16, or October 6.  No need to register to attend, just drop in.   Please plan to attend the entire session.

Date Time Topic
Wednesday, August 10 11:00 a.m. – 11:45 a.m. Changes to the Purchase of Prior Service Provisions
Wednesday, August 10 12:00 p.m. – 12:45 p.m. The Refunded Service Comparison Estimator
Friday, September 16 3:30 p.m. – 4:15 p.m. Changes to the Purchase of Prior Service Provisions
Thursday, October 6 12:00 p.m. – 12:45 p.m. Changes to the Purchase of Prior Service Provisions

   

There will be another webinar on October 25 from 2:00 p.m. to 2:45 p.m. which you can register to watch from your desk or home.

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