VRS administers a tax-qualified pension plan under Section 401(a) of the Internal Revenue Code. The Internal Revenue Code prohibits distributions from a qualified pension plan to members who are working for the employer from which they retired. For VRS, this includes:
- Retirees who return to covered employment under a retirement plan administered by VRS
- Retirees who return to non-covered employment with the employer from which they retired without a bona fide break in service
Because federal requirements govern the VRS retirement plans, non-compliance may result in penalties for employers and VRS. Members and retirees also may face tax consequences.
A bona fide break in service is a break of at least one full calendar month from the effective date of retirement over a period the employee normally would work. Periods of leave with or without pay do not count toward satisfying this break in service. For retired teachers and faculty members, summer breaks, intersession periods, educational leave and sabbaticals also do not count toward satisfying this break.
Non-covered employment is a part-time position with a VRS-participating employer. Non-covered positions do not provide eligibility for benefits. Part-time positions typically require less than 80 percent of the hours of comparable full-time permanent positions. Some full-time positions may be considered non-covered if they are temporary and require less than 80 percent of the hours per year that would be considered full-time and permanent for that position. Note that some permanent salaried part-time state positions are covered under VRS.
If you hire a retiree in a position that would be considered covered and do not report the retiree to VRS, or if you hire a retired former employee in a non-covered position without a bona fide break in service, you may be liable for repaying any retirement benefits the retiree receives while working in the position. As provided in Section 51.1-124.9(B) of the Code of Virginia, VRS is authorized to collect benefit overpayments from the employer, not the retiree, in cases where the employer does not comply with return-to-work provisions. This section also provides for the collection of overpayments from the employer if the employer grants a salary increase to a retiree not related to a promotion and the primary purpose is to increase the retiree's benefit.
If you are planning to hire a VRS retiree or have a question about return-to-work provisions, call VRS toll free at 1-888-VARETIR (1-888-827-3847) and ask to speak to your Employer Representative. Who is my Employer Representative?
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