Hybrid Rate Separation

Employers make a monthly payment to VRS that includes:

• Board-certified defined benefit rate, which is reduced proportionately for hybrid members’ voluntary elections and the required employer matching contribution.

Employers make per-payroll payments to MissionSquare Retirement that include:

• Mandatory defined contributions.
• Employer match to employee voluntary defined contributions.

The defined contribution component of the Hybrid Retirement Plan is linked to the service credit earned by the member for the defined benefit component.

As a result, the VRS business rules related to the defined benefit component also apply to the defined contribution component, including how you report mid-month hires and separations.

• Fixed defined benefit rate for all plans (Plan 1, Plan 2 and Hybrid).
• Defined benefit rate will no longer include an estimate of voluntary defined contributions for hybrid plan members.
• Defined contributions will continue to vary.

Going forward, you will administer the hybrid defined contribution component and defined benefit component as separate, independent plans. There will be no change to how you administer the defined benefit plan . However, defined contribution deductions will no longer follow the myVRS Navigator Business Rules.

In the future, employers will:

• Withhold and remit mandatory defined contributions from every paycheck, even if the employee starts or leaves mid-month. New hires can start saving for retirement sooner, and you can stop contributions for separated employees with their final check, reducing reconciliation issues.
• Withhold and remit voluntary contribution changes and the corresponding employer match in the same manner used today and continue to do so through the member’s last paycheck along with mandatory contributions.
• Remit defined benefit contributions to VRS each month as usual using the current first of the month myVRS Navigator rules.

Payroll System Updates

Depending on the structure of your payroll system, your IT team may need to remove the link between the defined benefit and defined contribution employer contributions. You may also need to update your internal reconciliation and reporting processes to be ready for the rate separation in July 2024.

• Now is the time for your finance and IT teams to evaluate the impact of this change on your payroll system and schedule any programming changes required to separate the contribution rates into two streams: one to VRS and the other to MissionSquare Retirement.
• The defined contribution component will no longer be part of the employer contribution confirmation snapshot process, except for adjustments related to any periods before the July 2024 snapshot.
• Historical defined contribution component amounts will continue to be visible in myVRS Navigator for all snapshots that occurred before July 2024 and maintained in the member’s historical record.
• Although you will see changes in how defined contribution information is displayed in myVRS Navigator, there are no changes to the format of batch files. Batch filers should test your payroll system changes internally, but there is no need to test with VRS, as the file format you send to VRS will not change.

Reconciliations

• Address existing payment reconciliation issues in your system and stay current leading up to the transition in July 2024.
• 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.
• Consider whether you need to update your internal reconciliation and reporting processes or policies.

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 .

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.

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. Instead, the employer will submit contributions for the defined contribution component directly to MissionSquare Retirement. 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.

What is the impact to employees due to this change?

The hybrid rate separation will be mostly seamless for 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. There will be no changes to contribution amounts unless the member changes the percentage of voluntary contributions. For new hires, mandatory deductions may begin sooner than they would today, leading to quicker investment of contributions.