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 Benefit Plan

VRS

July 1, 2024Employers pay a single defined benefit rate that includes the defined benefit component of the Hybrid Retirement Plan and VRS Plan 1 and VRS Plan 2.
 
Defined Contribution Employer Match

MissionSquare

July 1, 2024The employer matching contribution to the defined contribution component will continue to vary based on individual member election of voluntary contributions.

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.

See contribution rates.

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.