Optional Retirement Plan
Guide...
- Introduction
- Choosing Your Retirement Program
- Comparing Plans
- Selecting a Plan
- Final Comments
The choice of a retirement program is a critical one because of its impact on your financial security. As a university employee with academic rank, you have the choice between two retirement plans that are distinctly different.
Defined Benefit:
Please note: The VRS defined benefit plan described below is for Plan 2 participants,
those who began employment on or after July 1, 2010. For a comparison of VRS and ORP
for Plan 1 participants, please see
"VRS Optional Retirement Plan for Higher Education"
The Virginia Retirement System (VRS) is a defined benefit plan. That means that your retirement benefit is determined by the following: the amount of service you accumulate in VRS-covered positions; your age at retirement; and the average of your 60 consecutive months of highest salary. Your employer guarantees this benefit and assumes all investment risk. In general, a defined benefit plan tends to produce a larger benefit for those who have long service.
The main disadvantage with a defined benefit plan is that actuarial reductions are applied to your benefit if you do not qualify for an unreduced retirement. To qualify for unreduced retirement from VRS, you must be of normal Social Security retirement age with at least 5 years of service credit or age 60 with age and service equaling 90. The earliest reduced retirement eligibility is at age 60 with at least 5 years of service credit.
Defined Contribution:
The Optional Retirement Plan (ORP), on the other hand, is a defined contribution plan where vesting is immediate. Your retirement benefit is based on the contributions paid into the plan and the investment gains and losses on these contributions. Mason contributes 8.5% and you contribute 5% of your creditable compensation. You make the investment choices and assume all risks associated with theses choices. Your employer bears no responsibility for the outcome.
In general, a defined contribution plan such as the ORP works best for people who have multiple employers during their careers.