Table of Contents
Management of the System
Type of Plan and Contributions
Vesting and Membership in the System
Annual Statement of Benefits
Separation of Service
Termination of Service
Tax on Refunds
Vested Deferred Membership
Transfer of Membership - Portability
Retirement Service Credit
Grant of Service Credit
Military, Legislative or Jury Duty Leave Credits
Approved Leave of Absence
Eligibility for Retirement
Applying for Benefits
Tax on Retirement Benefits
Calculating Your Retirement Benefits
Cost-of-Living Adjustment COLA
Employment After Retirement
Changes in the Monthly Pension Check
Other Retirement and Survivorship Benefits
The Vermont State Teachers' Retirement System (VSTRS) for Group A members forms a solid foundation for your retirement income. Together with your personal savings and Social Security, you can look to your benefits from the System to help you plan for a secure and comfortable retirement.
The general administration and responsibility for formulating administrative policy and procedures of the retirement System for its members and their beneficiaries is vested in the Board of Trustees consisting of six members. They are the State Treasurer, the Commissioner of Education, the Commissioner of Banking, Insurance, Securities and Health Care Administration, two elected active members, and one appointed retired member.
The Board appoints an executive secretary that acts as executive officer for the Board. The administrative functions of the VSTRS are managed by the Director of Retirement Operations and carried out by the staff. Board meetings are open to the public and members are welcome to attend at any time. Administrative appeals or other claims should be addressed to the Board for action at its next meeting.
VSTRS is a public employee pension plan and trust qualified as a tax-exempt organization under Sections 401(a) if the Internal Revenue Code (IRC). It is a contributory, defined benefit plan to which its participating members make regular contributions to a trust fund and the State of Vermont deposits an annual appropriation (contribution) based on a recommendation resulting from an actuarial assumption of liabilities. Group A members make annual pre-tax contributions equal to 5.5% of pay into the trust fund. Your contributions cease following 25 years of service, with additional credit granted to those members who retire under a normal retirement and who had contributed for more than 25 years as of July 1, 1990. Earnings on the trust fund investments provide a portion of your benefit, along with the State of Vermont's contribution. With a defined benefit plan a participant's actual retirement benefit is specifically determined by a formula, which contains three variables; the participant's service credit, the participant's age at retirement, and their average final compensation. The final benefit is not dependent on the amount of contributions made to the plan.
You are a Group A member if you were employed as a public school teacher within the State of Vermont prior to July 1, 1981 and elected to remain a Group A member. You will be vested in the VSTRS upon the attainment of five (5) years of creditable service. The definition of "Teacher" shall mean any licensed teacher, principal, supervisor, superintendent or any professional licensed by the state board of education regularly employed for the full normal working time for his or her position in a public day school within the state, or in any school or teacher-training institution located within the state, controlled by the state board of education, and supported wholly by the state; or any teacher, principal, supervisor, superintendent or any professional regularly employed for the full normal working time for his or her position in any nonsectarian independent school which serves as a high school for the town or city in which the same is located, provided such school is not conducted for personal profit. It shall also mean any person employed in a teaching capacity in certain public independent schools designated for such purposes by the board of trustees in accordance with section 1935 of Title 16. In all cases of doubt the board of trustees, herein defined, shall determine whether any person is a teacher as defined in 16 V.S.A. Chapter 55.
Enrollment is mandatory and you must be enrolled in the VSTRS as soon as you meet the eligibility requirement, previously described, regardless of any probationary period your employer may have. Your employer will notify the system of your employment with their quarterly employment and wage report. You will be sent notification of your enrollment and a designation of beneficiary form, and asked to submit the beneficiary form to the VSTRS as soon as possible.
A beneficiary(ies)is the person(s) to whom you want your accumulated contributions plus interest to be refunded and/or any available death benefits to be paid to if you die before retirement. However, a death-in-service benefit is only payable to your designated dependent beneficiary. You may choose any person or your estate, as your beneficiary and you may change your designation at any time by filing the appropriate form with the VSTRS. All designation of beneficiary forms must be notarized. If you do not complete a beneficiary designation form, any return of contributions or benefits payable in the event of your death will be payable according to applicable Vermont law.
Each Fall, a computer printed statement is mailed to active members of the system. These statements should be checked over carefully to verify if we have accurate information on the member's account, i.e., date of membership, beneficiary, address, etc. The statement date is as of June 30 of the year sent. The first annual statement would be mailed to a new member in the fall after completion of a full fiscal year of earnings (July 1 - June 30).
The first paragraph explains what a member would receive if they continue working to normal retirement age. The second paragraph explains what a member has earned to date and what a member would receive if they were to terminate their job immediately. The statement is calculated based on current salary. All the figures are annual amounts. The third paragraph shows what the member's contributions are to date and the interest that has accrued. This paragraph also shows who is designated as primary beneficiary: if a beneficiary isn't named, ESTATE will appear. If a member has questions regarding the annual statement, they should call our office. It is also very important that addresses are kept up-to-date with the office so that this and other mailings will reach all members.
If you leave State service before you have acquired five consecutive years of creditable service, and withdraw your accumulated contributions, your service credits will be cancelled. You may leave your contributions in your account for up to six out of seven consecutive years before the VSTRS will automatically withdraw your membership and refund your contribution.
If you separate from service after you have accumulated five or more consecutive years of creditable service, and withdraw your accumulated contributions, your service credits will be cancelled. You may leave your contributions in your account for up to six (6) years before the VSTRS will automatically put your account in a vested deferred status, if you have not returned to service by the seventh year of absence.
Membership in the retirement system is terminated by the death of a member, retirement of a member or occurs when a member withdraws accumulated contributions regardless of the number of accumulated years of creditable service. For non-vested members, termination of membership will occur when you have not been an active member of the system for more than six out of seven consecutive years after separation.
If a member terminates employment and wishes to take a refund of their contributions plus accumulated interest in lieu of a pension, they are subject to a mandatory 20% federal tax withholding plus a possible 10% excise tax (if the member is under age 59 1/2) on the "taxable portion" of said refund. The taxable portion of a refund is the interest paid by the system on the member's account, plus all employee contributions made on a pre-tax basis. The only way to avoid the 20% mandatory withholding on a withdrawal is to direct the Retirement System to roll over the taxable monies to another tax-sheltered qualified plan. Taxable amounts of less than $200.00 are not subject to the mandatory withholding. This withholding does not apply to pension benefits. This federal regulation became effective January 1, 1993 for all lump sum distributions payable to a member at time of withdrawal.
Even if your active membership in the VSTRS ends before you are eligible to retire, you may be entitled to a pension from the VSTRS in the future. Once you have five or more years of service credit, you are vested and cannot lose your credit unless you elect to withdraw your contribution balance.
Members who leave their employment as a teacher and join either the Vermont State Employees' Retirement System or the Vermont Municipal Employees' Retirement System may transfer their retirement credit to either system within one year of their new employment, and vice versa, provided that they have not received a refund of contributions or any retirement benefit payments.
If a dual membership is established in one of the Vermont Retirement Systems, you will be notified by the retirement office of your option to transfer.
You will receive one-year of retirement service credit for each year that you are employed as a full-time teacher and are an active member in the System. If you work part-time, you will receive partial credit based on the percentage of the actual number of days that are worked divided by 175 (the equivalent of a full year of service). If you transfer qualified service credit from another plan, it will be included in your accumulated service credit. In addition, you may be eligible to purchase or be granted some types of qualifying service credit. You will lose your retirement service credit and any retirement benefit if you terminate and withdraw your accumulated contributions. However, if you have five or more years of service and leave your contributions in the System, you are guaranteed a retirement benefit at the normal retirement age of 60, or an early retirement at age 55. All you need to do is contact the retirement office at least 9 months before your planned retirement for an estimate and application forms. Retirement benefits are not automatic, you must apply for them.
You may purchase retirement credit for service in the military, Peace Corps, or VISTA (after completion of 15 years of service), service as a state or municipal employee, teaching in another state, teaching in a public or private school, or teaching service with the State of Vermont for which you received no retirement credit.
While the Retirement Office can readily provide you with the actual cost to make the purchase, our experience has shown that acquiring the verification or documentation of prior service can be a lengthy process. To that end, we encourage all members who are interested in following through with a purchase to begin the verification process as soon as possible. Service credit documentation must be reviewed by our office and determined eligible prior to submitting payment. Under the law purchase payments must be completed within a five-year period prior to retirement in equal annual installments. Payments must also indicate whether they are being made on a pre-tax or post-tax basis.
You will need verification of prior service for any of the above categories indicating the years you worked, position held, whether you were full-time or part-time and whether you are eligible to receive a pension associated with the service. Please complete the Application To Purchase Service Credit Form and return it to our office with the verification/documentation of your service. You will also need to indicate the number of years you are interested in purchasing and the timeframe for making the purchase. Upon receipt of this information we will issue a service purchase letter including the eligible years to purchase, the purchase cost, and the time-frames associated with the purchase.
With at least twenty-five years of creditable service, you also may purchase up to five additional years, called "air time". Air time is non-qualifying time, as opposed to any type of actual service performed. For example if you have twenty-five years of service credit you could purchase the remaining five years of air time and retire with thirty years of service.
All of these purchase opportunities are cost neutral to the system. This means that you must pay the full cost of the added retirement benefit received, including the State's share. Air time cannot exceed five years of creditable service. Total military service also cannot exceed five years. Total purchase for non-military service is limited to ten years of credit, and in no case can a combined total of more than twenty years of service be purchased.
There can be no parallel retirement rights in any other system for the credit you purchase. You should contact the Retirement Office for final cost figures and return on investment information as well as the application procedure. Please contact the Retirement Office for an estimate of the cost to purchase service.
Important Note: You may make purchases with post-tax dollars or with pre-tax dollars as a direct roll-over from your 403(b), 457, 401(a), 401(k), or IRA account.
You may be eligible for a grant of service credit in the VSTRS for certain qualifying events. Upon application you may be granted service credit for up to three years of military service in the Korean War and Vietnam Conflict, provided you have 15 years of creditable teaching service. You may also qualify for service credit if during your membership in the VSTRS your employer granted a leave of absence to you for professional study or an exchange program.
If a member is required to take a leave of absence from their present employer to serve in the military, they are entitled to credit in the retirement system for that period of leave if they return to work within 90 days of discharge. If a member takes a leave of absence to serve in the Legislature or on jury duty, or because of a worker comp injury, they are entitled to credit in the retirement system as well. Employers are notified that they must report such leaves to the system, but it is the responsibility of the employee to be sure that the proper credit is made.
For example, if a member takes two weeks of leave without pay for military duty, the service credit that the member receives for that fiscal year may be reduced because of the off-payroll status unless the Retirement Office has received proper notification. The annual statement should always be thoroughly reviewed, and if there appears to be a discrepancy or question about the service credit, the retirement office should be contacted, immediately.
After July 1, 1991 if you take an approved leave of absence for purposes other than for professional study, service credit shall be restored upon payment of the contributions that you would have made into the system had you been employed during your absence. In order to be eligible to receive service credit for this period for time, you must submit a copy of a letter from your school or minutes from a meeting of the School Board that permitted the leave of absence and a letter from your school stating what your salary and service credit would have been if you had worked for your full contract that school year. The Retirement Office will review and verify the documentation and provide the cost to restore the service credit.
You are eligible to receive a normal retirement benefit when you reach age 60 or have 30 years of service at any age, whichever comes first.
You are eligible for an early retirement benefit after you have completed five years of service and have attained age 55. An actuarial reduction will be imposed for each year under the age of 60.
Vested Deferred Retirement
If you terminate service before age 55, and accrued five (5) or more years of service before termination you may be eligible for a vested deferred retirement benefit.
If you become disabled, you are eligible to apply for disability retirement if notice to our office is filed no later than 90 days after the date you separated from service, and you have five or more years of creditable service, and served as a teacher in the state during the five years immediately preceding the date of separation from service. Your application is subject to review and certification by the Medical Review Board (MRB) and approval by the Board of Trustees that you are disabled on the basis of medical evidence. You are considered eligible for a disability pension if it is certified by the MRB that you have a physical or mental condition that prevents you from performing the duties of your position.
An annual review of the status of your disability may occur and would be based thereafter on your ability to perform any occupation. Post-disability income would be considered and can reduce your benefit. Your eligibility ceases at the end of the month in which you recover and/or are determined no longer disabled. Termination of a disability pension does not affect your right to apply for a transfer to a normal or early pension benefit, if qualified.
You should contact the Retirement Office if you have any questions concerning disability benefits or the application process.
Retirement benefits are not automatic; you must apply for them. Contact the Retirement Office at least 9 months prior to the date that you plan to retire for an estimate, application materials, and health insurance and tax forms. Upon written application you may retire on a service retirement allowance on the first day of the calendar month next following the filing of the application or your separation from service, whichever date is later, provided that you have attained age sixty or have completed thirty years of creditable service at the date of retirement.
Retirement benefits are paid monthly on the last business day of the month, starting with the end of the month in which your retirement occurs. Your retirement date is normally the first day of the month following your last day at work. Your written application must be filed prior to payment of retirement benefits.
Electronic banking is mandatory for all new retirements after January 1, 1999. A retiree shall have the monthly check electronically deposited to a checking or savings account. The pension is in the retiree's account on the last business day of each month. Remember that we are here to help you plan your retirement. It is recommended that you request a retirement estimate a year or two in advance to assist you in your retirement planning.
Retirement benefit payments are comprised of annuity (the portion of the benefit that comes from the member's contributions), and pension (the portion paid by the retirement system).
Most of your benefit will be taxable, but an exclusion ratio will be applied so that a specified amount will be excluded from tax if you made contributions prior to July 1, 1992 on an after tax basis. This exclusion ratio is based on the total after-tax contributions that you made during employment, or from a post-tax purchase of service credit, prior to retirement.
Federal tax regulations require that we withhold tax on retirement allowances for all recipients unless a waiver of withholding form is filed with this office. Members will receive more detailed information regarding tax withholding at the time they retire.
A Form 1099R will be mailed following the end of each calendar year that provides the necessary information to file tax returns. It should be noted that the payment dated December 31 would be included in that calendar year total, even though it may not be received until January. The Retirement Office is, however, unable to further assist or advise in the preparation of members' tax returns. Retirees should consult an accountant or attorney, or Federal and State tax authorities, for any other information concerning taxation of the allowance received from the VSTRS.
A monthly statement itemizing the current and year-to-date withholdings is mailed to each retiree only when a change occurs in the gross or net amounts.
One of the components in calculating the amount of your pension benefit is determined by your Average Final Compensation (AFC). Your AFC is the average of your three highest consecutive years of earnings. Another component is the number of your years of creditable service at retirement or termination.
For normal retirement at age 60 or with 30 years of service, there is no reduction in benefits for age. Assuming you have 30 years of service or are age 60, your annual benefit is calculated as follows:
Group A Service x .0167 x AFC
For example, if your three highest consecutive years of salary were $39,000, $42,000, and $45,000, (the AFC would be $42,000) and you have 30 years of service credit under Group A, your benefit would be calculated as:
30 x .0167 x $42,000
$21,042 annually or
about $1,754 a month
Note that age has no impact upon this retirement benefit because you have 30 years of service. This is called Option 1, (basic) or maximum benefit. It is paid in full for your life, or it may be reduced to provide a survivor benefit. By law, your maximum benefit cannot exceed 100% of your AFC.
If you are age 55 and have at least 5 years of service, you can take early retirement. Your benefit is calculated the same as a normal retirement benefit, but with an actuarial reduction for every month you are under age 60 is applied.
For instance, if you have an AFC of $35,000 and are age 58 and 3 months at retirement with 25 years of Group A service, the early reduction factor would be .8423352 and your benefit would be:
25 x .0167 x $35,000 x .8423352
$12,309 annually or
about $1,026 a month
If you have 5 years of service and are unable to perform your duties because of a disability, which is likely to be permanent, you may apply for a disability retirement benefit. Your disability benefit is calculated without penalty, the same way as a normal benefit, except there is a minimum benefit equal to 25% of your AFC.
Please note that you must provide notice to our office of your intent to apply for a disability retirement benefit within 90 days after separation of service with the State of Vermont.
If you have 5 or more years of service and leave employment as a teacher before age 55, you are entitled to a vested retirement benefit provided that you do not withdraw your contributions. Your vested retirement benefit is payable to you at age 60 (or as early as age 55 with a penalty applied), and is calculated in the same way as a normal retirement benefit or early retirement depending on your age.
You may always request a refund of your retirement plan contributions plus accumulated interest even after your account has been placed in a vested, deferred status. A refund will cancel your retirement service credit and any right to future retirement benefits.
Death benefits are any payment made by the retirement system to a beneficiary of a deceased member of the system. Such payments may take the form of the refund of the accumulated contributions, or lifetime monthly payments if the beneficiary qualifies for such payments.
If you die as a member before termination or retirement and have 10 years of service or are age 55 with five years of service, a benefit is payable to your designated dependent beneficiary.
Amount of Survivor Benefit
The benefit payable to your designated dependent beneficiary is calculated as if you had retired on the date of death and had chosen Option 5 (100% Survivorship). Your designated dependent beneficiary may choose to receive a refund of contributions in lieu of the survivor benefit.
If you are in service at date of death, on leave of absence under board rules or on an approved leave of absence for military service or professional study, with one or more years of creditable service, or if your death was the result of an accident, a pension equal to 10% of your AFC but not less than $50 a month will be payable to up to three dependent children under age 18 and to age 23 if the child is a full-time, unmarried, dependent student. Additional provisions are applicable to disabled children.
If you are do not meet the eligibility requirements for a survivor benefit or do not have a designated dependent beneficiary, the lump sum value of your contributions and interest will be paid to your designated beneficiary or your estate.
Option 1 - Maximum
The Maximum Option provides the largest possible benefit payment computed under the Standard Formula to the retiree for his/her lifetime. All payments ceaseupon the death of the retiree.
Option 2 - Guaranteed Return of Member's Accumulated Contributions
Note: This option is not available to Group B (non-contributory) members. The Guaranteed Return Option provides a slightly reduced payment to the retiree for his/her lifetime with all payments ceasing at the time of the retiree's death. The beneficiary is entitled to receive a cash lump sum payment representing the difference between the retiree's accumulated contributions at retirement (the money contributed to the system by the retiree) and the annuity portion of the retiree's benefit which the retiree has received since the retirement commenced. Generally speaking lump sum contribution balances are exhausted after approximately 10 to 13 years of receiving retirement benefits. The beneficiary designation under this option may be changed subsequently, if the retiree so chooses.
Option 3 - 50% Survivorship Payments to Retiree's Beneficiary/Survivor
This option provides a reduced payment to the retiree for his/her lifetime with the provision that at the time of the retiree's death, one-half or 50% of the retiree's monthly benefit payment continues to his/her beneficiary/survivor for their lifetime. The beneficiary/survivor designated by the retiree at their retirement cannot subsequently be changed. In other words, the continued benefit is not transferable to another beneficiary/survivor.
Option 3-A - 50% Survivorship Pop-Up; see * below
Option 4 - 75% Survivorship Payments to Retiree's Beneficiary/Survivor
Provides a reduced payment to the retiree for his/her lifetime with the provision that at the time of the retiree's death, three-quarters or 75% of the retiree's monthly benefit payment continues to his/her beneficiary/survivor for their lifetime. The beneficiary/survivor designated by the retiree at retirement cannot subsequently be changed. In other words, the continued benefit is not transferable to another beneficiary/survivor.
Option 4-A - 75% Survivorship Pop-Up; see * below
Option 5 - 100% Survivorship Payments to Retiree's Beneficiary/Survivor
Provides a reduced payment to the retiree for his/her lifetime with the provision that at the time of the retiree's death, 100% of the retiree's monthly benefit payment continues to his/her beneficiary/survivor for their lifetime. The beneficiary/survivor designated by the retiree at retirement cannot subsequently be changed. In other words, the continued benefit is not transferable to another beneficiary/survivor.
Option 5-A - 100% Survivorship Pop-Up; see * below
*Options 3A, 4A, and 5A - Survivorship Pop-Ups
These options provide the regular 50%, 75%, or 100% continuation of benefits to the surviving beneficiary with the provision that if the beneficiary/survivor pre-deceases the retiree, the benefits to the retiree shall increase to the amount of the retirement allowance which would have been payable under the Maximum Option. If the beneficiary/survivor pre-deceases the retiree, all benefit payments cease upon the retiree's death. Benefits may also revert to Maximum based on the stipulations contained in a plan-approved Domestic Relations Order resulting from a divorce.
Level Income Option
At age 62, you will probably be eligible to receive a Social Security retirement benefit. Some members, however, retire before reaching age 62 and would like to increase their benefit through the Level Income Option.
Under this option, a member elects to receive a percentage of the member's estimated Social Security benefit from the Retirement System before Social Security actually begins, and then receives a reduced allowance from the System after age 62 when Social Security is received. The actual Social Security benefits you receive will not affect the Level Income Option after the initial calculations are made.
If you also elect a survivorship option, the survivor benefit is paid based on your benefit before adjustments for the Level Income Option. On an actuarial basis, the Level Income Option is cost neutral. It sometimes allows a member to retire when retirement would otherwise be impossible, but if the member lives far beyond age 62, the option may have been a poor choice since the reduction in benefit after age 62 will continue for as long as you live.
Group A retirees receive cost-of-living adjustments if they have received twelve checks. These adjustments are made each January to those members who have been retired for at least one calendar year, and are based upon the preceding June 30 Consumer Price Index (CPI) increase or decrease, with an annual adjustment ceiling of 5% and a minimum of 1%.
You may generally earn other income without restriction while you are receiving a retirement benefit. If you retire and return to work as a teacher or an administrator, however, and you earn more than 60% of the current average teacher's earnings or work more than the maximum period for substitute teachers, your retirement benefit will be "frozen" and you must return any payments made to you by the Retirement System in that fiscal year. You may contact the Retirement Office for the current allowable earnings for retired teachers.
If you accrue another 5.0 years of service credit, you will be eligible for an additional retirement benefit based on the new salaries and service credit. When you retire again, both the "frozen" and any new benefits will be paid. Any previous optional election will remain in effect for the "frozen" benefit; you can elect a new option for the additional benefit.
It may be necessary from time to time to change tax withholdings, the regular mailing or alternate mailing address, or make changes due to divorce or death. It is the responsibility of the retiree to notify our office in writing of any changes that must be made to your pension check. Changes received by the 15th of any month can be processed for that month. If changes are received after the 15th, we cannot guarantee that the change will occur for that month.
The law requires that an approved actuary make an annual valuation of the System's assets and liabilities. The actuarial valuation determines the financial condition of the retirement fund and the required state contribution to the System. The System's consulting actuary also does other special studies related to new or proposed legislation. A copy of the System's current actuarial valuation is available and may be reviewed at the Retirement Office or on the system's website under VSTRS Financial Reports.
Health Insurance After Retirement
- If on June 30, 2010 you were a member with at least 10 years of service credit, click here.
- If on June 30, 2012 you were a member with less than 10 years of service credit, click here.
At the date of retirement, members are given a one-time option to choose Dental Insurance at the full premium cost to the member. Members can also cover all eligible dependents, if applicable. The state will not contribute any portion of this premium. There will be a double deduction for the dental premium from your first pension check, as our office needs to set the payments up in advance of the month during which the coverage occurs.
Some retirement systems are integrated with Social Security, and the amount of one's retirement check depends upon the benefit from the federal government. The System has no effect upon Social Security and vice versa; the two supplement one another. Remember that you have to apply for both benefits, since neither is automatic.
Full Social Security is paid at ages 65 to 67, depending on your year of birth. Employees born in 1937 or earlier are entitled to full benefits at age 65; employees born in 1960 or later will be entitled to full benefits at age 67. The full benefit age gradually increases from age 65 to 67 for those born between 1938 to 1959.
Benefits can begin as early as age 62 with a 20% to 30% reduction, depending on your year of birth. The reduction is 20% for employees born in 1937 or earlier.
Single Deposit Investment Account (SDIA)
The single deposit investment account was an option, which was available to members to increase their income at retirement by allowing contributions to be deposited into a tax-sheltered account upon transfer from the non-contributory system. SDIA money is available for withdrawal upon termination of employment or retirement, but a penalty will be applied for withdrawals from the taxable portion prior to age 59 ½, unless retirement occurs after age 55. Please contact Prudential Retirement for distribution information.
If you still have questions regarding your retirement account or other matters about retirement, please do not hesitate to contact the Retirement Office at 1-800-642-3191 (toll free within VT only) or (802) 828-2305. Our staff is always happy to answer your questions and assist in your retirement planning.