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:
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 three consecutive years 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 have 30 years of service and be at least 50 years old, or have at least five years of service at age 65. To receive reduced lifetime monthly payments, you must be vested (have a minimum of five years of service on record with VRS) and be between the ages 50-65.
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. 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.