Navigator
Simplifying Hybrid Plan Administration
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Following a legislative change to the Hybrid Retirement Plan on July 1, 2024, employers began managing payroll withholding for the defined contribution component independently from the defined benefit component.
Background
On July 1, 2024, employers began administering the Hybrid Retirement Plan defined contribution component more like a traditional defined contribution plan.
Defined Contribution Employer Match
MissionSquare
Defined Benefit Plan
July 1, 2024
Rates employers pay for Plan 1, Plan 2 and the defined benefit component of the hybrid plan will be the same for all three plans.
Defined Contribution Employer Match
July 1, 2024
The employer matching contribution to the defined contribution component will continue to vary based on individual member election of voluntary contributions.
Employers now submit separate payments:
- Remit defined benefit contributions for employees in all plans to VRS each month.
- Remit defined contribution amounts for hybrid plan members to MissionSquare Retirement (record keeper for VRS defined contribution plans) each pay period.
The July 1 change also coincided with the normal rate-setting schedule for employer defined benefit contributions for fiscal years 2025-2026.
Background
When legislation created the hybrid plan in 2014, VRS accounted for the required employer match of member voluntary contributions to the defined contribution component by blending it with the defined benefit contribution rate.
Blending the rates meant:
- Estimating the required employer contribution to the hybrid defined contribution component, using VRS actuarial data.
- Lowering the defined benefit employer contribution for hybrid plan members based on the mandatory defined contribution component and further reducing the defined benefit rate as members increased voluntary contributions.
- Applying defined benefit business rules to the defined contribution component of the hybrid plan.
Over time, the variable nature of member voluntary contributions and the employer match has created plan administration and account reconciliation challenges for employers and VRS. Actuarial estimates do not always correspond with actual voluntary contributions made by hybrid plan members to the defined contribution component of their plan, often resulting in underfunding of the defined benefit plan.
Separating the defined benefit and defined contribution rates:
- Streamlines workflow.
- Reduces payroll processing errors.
- Eases reconciliations for overpayments and underpayments.
Are You Payroll Ready?
As of July 1, 2024, employers administer the defined contribution and defined benefit portions of the Hybrid Retirement Plan as separate and independent components.
Defined Benefit Component
Step 1
In your payroll system, set up a new defined benefit employer contribution for hybrid plan members, which will be the same employer contribution rate as for Plan 1 and Plan 2 members.
Step 2
Generate your monthly snapshot to review defined benefit contribution amounts due. The snapshot will no longer show the expected defined contribution amount.
Step 3
Resolve any errors or discrepancies in the snapshot.
Step 4
Confirm snapshot.
Step 5
Remit defined benefit payment in full to VRS by 10th of the month. Your payment is based on your employer contribution rate, which is the same rate applied to all employees regardless of plan. In myVRS Navigator, use the Payment Scheduler to set up the payment due, per the snapshot, to VRS by the 10th of each month.
NoteVRS recommends performing steps 2 and 3 multiple times throughout the month as needed before confirming your snapshot in Step 4.
Defined Contribution Component
Step 1
Establish mandatory employee and employer contributions for new Hybrid plan members with first payroll.
Step 2
Update employee voluntary contribution percentages in your payroll system. Download the Deferral Changes Report quarterly from MissionSquare Retirement to monitor changes in employee voluntary contributions. Instructions for downloading the report are located on the Retirement Plan Resource Center for Employers.
Step 3
Compare payroll withholdings against what was remitted to MissionSquare. Resolve any errors and discrepancies. See Retirement Plan DC Correction Policy.
Step 4
Create contribution file within or upload to EZLink.
Step 5
Remit employee and employer contributions to MissionSquare every time you run payroll.
Key Reminders
- The definition of creditable compensation has not changed.
- For the defined benefit component, divide the employee's annual creditable compensation evenly over 12 months.
- For the defined contribution component, base the deductions on the employee's creditable compensation portion of their actual pay for that pay period.
- Withhold and remit mandatory and voluntary defined contributions from every paycheck, even if the employee starts or leaves mid-month or you have 26 or 52 pay periods. Alert employees of the change and reassure them that the total contribution amount for the year remains the same.
Schools and higher eds
- If you do not currently withhold defined contributions during the summer (off-contract months), you will need to make a process change. The Code of Virginia requires defined contribution plans, such as 457(b) and 403(b) plans, to take contributions from each paycheck.
- For less-than-12-month contract employees, defined contribution deductions per pay period will begin at the start of the new contract (e.g., September 2024, with DC contribution withholdings in off-contract months starting summer 2025).
- Defined contribution data will no longer be available in the snapshot. However, pre-July 1, 2024, historical data will still be displayed.
Your Questions Answered
Read VRS responses to employers’ questions about the process.
Payroll Withholding
If we hire an employee after the 15th of the month, they do not receive their first payroll until the following month. When should we send the employee's contribution to MissionSquare?
Contributions are withheld when the person is paid; no contribution is required until the first payroll, which would likely be in the subsequent month.
How will MissionSquare determine if we sent the right amount?
MissionSquare will expect to receive contributions for members in an active status, but they will not validate the amounts received. Likewise, they will not expect contributions for someone in a separated status.
For dual-employment situations, if we are the non-covering employer, do we make DC contributions on behalf of the employee since the DC plan will be separate?
No, all retirement contributions only come from the employer covering the active hybrid plan member.
Are defined contribution deductions based on creditable compensation, or should they also come out of bonuses, overtime or leave pay?
Bonuses, overtime and leave payouts are not considered creditable compensation. The definition of creditable compensation is unchanged and applies to both defined contribution deductions and defined benefit deductions. Refer to the Creditable Compensation Job Aidfor a refresher.
If we are remitting contributions monthly for the defined contribution component, even if we have 24 payrolls, can we continue to remit monthly to MissionSquare?
No. Per the Code of Virginia, defined contribution deductions should be withheld and remitted each pay period to ensure timely investment of the member’s contributions. (Monthly remittance was permitted previously because the defined contribution rate was blended with the defined benefit rate.)
Is taking defined contributions 26 times a year versus the current 24 times a year optional or mandatory when the legislation goes into effect?
You do not need to change your payroll schedule; however, you should review how often you currently withhold defined contributions for Hybrid Retirement Plan members. Starting July 1, 2024, each and every time you run payroll, you should withhold defined contributions from hybrid plan members’ creditable compensation.
Will there be any impact to the employer processing of the 1% defined contribution (DC) employer mandatory contributions for hybrid members on long-term disability who are approved for Social Security Disability Insurance?
For this group of employees, VRS, or the employer with a comparable local disability plan, contributes the 1% mandatory employer DC contributions to MissionSquare monthly, according to the employee’s salary reported in myVRS Navigator. The procedure, which is based on the Code of Virginia § 51.1-1172, will not change following hybrid rate separation. VRS will continue to base the 1% employer mandatory contributions on the reported salary. Employers with a comparable local disability plan should do the same.
Contract Employees
We hire employees on less-than-12-month contracts; does rate separation begin for this group on July 1, 2024?
For less-than-12-month contract employees, rate separation begins with the start of their next contract (e.g., September 2024). Rate separation does begin July 1, 2024, for all regular (12- month contract) employees.
When should new teachers – who are hired in the summer but don’t start work until September – be enrolled in myVRS Navigator?
Employers can enroll new hires in myVRS Navigator (either online or via batch) up to 60 days in advance of their start date. Employers don’t have to change the employment start dates or contract dates they typically enter in myVRS Navigator. Enrollment is a crucial step and allows MissionSquare to create the account so that payments can be accepted. Payments received for employees without a member record will be rejected with an error message.
Why should we enroll members early in myVRS Navigator since hybrid plan members can't designate voluntary contributions until the end of the quarter?
Enrollment in myVRS Navigator also establishes the account with MissionSquare. Without an account in place by the employee’s first paycheck, all defined contributions – including the mandatory 1% the employer makes on behalf of the member – will be rejected.
How often should employers send batch files?
VRS recommends sending batch files frequently; however, we recognize employers may not be in position to do so. Evaluate your hiring schedules and consider sending batch files weekly or bi-weekly, especially at the beginning of the school year when most new hires are coming on board, for school employers. Sending batch files more frequently than monthly can reduce contribution rejections and reconciliations.
If I report my teachers in 10-month contracts over 10 months, but I pay them over 12 months, do I need to start withholding and submitting defined contributions during their off-contract months?
Yes, you should withhold and submit defined contributions for hybrid plan members from every paycheck. If you pay a teacher over 12 months, you will withhold and submit defined contributions from each of those months. For example, a teacher on a 10-month contract who is paid over the 12 months would have defined contribution deductions withheld in the summer months.
If teachers are hired in August, but not enrolled until September, where do we send the contributions if we start the defined contribution deductions on their first payroll?
Defined contributions also begin with the first payroll, regardless of actual hire date. Employers can enroll employees in myVRS Navigator up to 60 days prior to the reported start date. MissionSquare will continue to receive enrollment and maintenance records from VRS every business day. Contributions can be remitted with the first check as long as the record is established in the MissionSquare system, which takes two to three business days after enrollment in myVRS Navigator.
Employers who enroll using a batch file should consider sending enrollment batch files more frequently to ensure the enrollment records are set up with MissionSquare before the employee’s first paycheck.
Reconciliation
How will we reconcile our DC contributions if the information will no longer be available on the VRS snapshot?
Good news—with rate separation, there will no longer be a need to reconcile defined contributions for hybrid plan members with the monthly VRS snapshot. That’s because the expected hybrid contribution amount will no longer appear on the VRS snapshot. Defined contributions will simply be a percentage of creditable compensation for each pay period the employee receives a paycheck.
To prevent reconciliation issues with MissionSquare, employers should review hybrid member contributions each pay period to ensure that the percentages withheld are accurate and include the mandatory 1% from the employee, along with any voluntary contributions elected by the employee. In addition, you also should ensure that employer contributions, including the mandatory 1% and any match to members’ voluntary contributions are also paid timely.
Note Historical defined contribution component amounts will continue to be visible in myVRS Navigator for all snapshots that occurred before July 2024 and also maintained in the member’s historical record.
Impact On Employees
What is the impact to employees due to this change?
The hybrid rate separation will be seamless for most employees. Employers will deduct employee contributions for the defined contribution component of the hybrid plan from every paycheck, a practice already familiar to most hybrid plan members.
Teachers and higher education personnel on 10-month contracts paid over 12 months will have defined contribution deductions withheld in the summer months, which may be a change. Yet, the total contribution amount for the year is the same.
Employees who are paid 26 or 52 times per year will also have defined contributions deducted from every paycheck, which may be a change. Again, the total contribution amount for the year remains the same.
General
Will the process for handling forfeited monies in defined contribution accounts change with hybrid rate separation?
There will be no change. Forfeited monies may be used to offset employer hybrid 401(a) contributions for the months of November and December.
When will VRS allow hybrid plan members to designate their voluntary contributions monthly rather than quarterly?
Contribution changes will be allowed monthly starting in January 2025, when VRS transitions to Voya as the third-party administrator for defined contribution plans.