RD578 - Return to Work for Law-Enforcement Officers Retired from VRS – Chapter 722 of the 2023 Acts of Assembly – November 1, 2023
Following publication of the Virginia Retirement System’s (VRS) Return to Work Provisions Governing Virginia Retirement System (VRS) Retirees (RD856) -- December 15, 2022, the 2023 General Assembly shortened the required break in service from 12 months to six months before certain retirees could return to work full time and continue to receive a VRS retirement benefit.
The 2023 General Assembly also passed SB 1411, which directed VRS and the Department of Criminal Justice Services (DCJS), in consultation with the Joint Legislative Audit and Review Commission (JLARC), to review options for allowing law-enforcement officers to return to work as law-enforcement officers after retirement. SB 1411 requires:
"That the Virginia Retirement System and the Department of Criminal Justice Services, in consultation with the Joint Legislative Audit and Review Commission, shall review and analyze options for allowing law-enforcement officers to return to work as law-enforcement officers after retirement and to continue to receive their retirement allowance during such employment. The review shall include an analysis of (i) the appropriate break in service required before returning to work; (ii) the level of need for retired law-enforcement officers to fill staffing shortages throughout the Commonwealth; (iii) the effectiveness and efficacy of employing retired law-enforcement officers in different law-enforcement positions, including those involving field operations; (iv) the Commonwealth's current return to work provisions for law-enforcement officers compared to those of other public employee pension plans; and (v) an actuarial analysis of potential modifications to such return to work provisions. The Virginia Retirement System and the Department of Criminal Justice Services shall complete their review and report their findings to the Chairmen of the House Committee on Appropriations and the Senate Committee on Finance and Appropriations by November 1, 2023."
Background – Law Enforcement Retirement Benefits
In general, most law-enforcement officers in the Commonwealth are eligible for enhanced retirement benefits as compared to other government employees, although the required employee contribution to the retirement plan is the same. Law-enforcement officers employed by the Department of State Police are covered by the State Police Officers’ Retirement System (SPORS) (Va. Code § 51.1-200 et seq.), and many other law-enforcement officers employed by the Commonwealth are covered by the Virginia Law Officers’ Retirement System (VaLORS) (Va. Code § 51.1-211 et seq.). Local governments also have the option under Va. Code § 51.1-138 to provide enhanced hazardous duty benefits to their law-enforcement officers that are similar to those offered to State Police officers and such enhanced hazardous duty benefits must be provided to deputy sheriffs.
Numerous reports to the General Assembly have explained that enhanced retirement benefits, including early retirement, are required for law-enforcement officers (i) to compensate for the physical and mental stresses associated with their duties, which often necessitate that such officers have a shorter working life than other employees and (ii) to ensure that law-enforcement officers who remain on the job possess the physical and mental capabilities to perform their work and protect themselves and members of the public from injury. For example, A 1973 report, HD5 (1973) - Report of the Virginia Advisory Legislative Council, State Police Compensation and Retirement, noted that “a relatively early retirement is necessary to protect citizens from officers who no longer possess the physical or mental attributes necessary to perform these complex and high stress tasks and to protect these older officers from possible serious injury due to decreased physiologic and psychologic capabilities."
Law-enforcement officers are typically eligible for unreduced retirement benefits earlier than general employees (both earlier age and fewer years of service requirements) and they receive greater benefit payments for the same amount of service. In general, the three main categories of enhanced retirement benefits received by law-enforcement officers are (i) early age and service retirement provisions, (ii) a higher retirement multiplier used to calculate retirement benefits, and (iii) a hazardous duty supplement. There may be differences in the enhanced benefits received depending on the law-enforcement officer’s employer and not all law-enforcement officers are entitled to each category of benefits.
Retirement Age and Service Requirements
The normal retirement age under SPORS and VaLORS and for local law-enforcement officers where their employer has opted to provide enhanced benefits is age 60. A member of these plans becomes eligible for an unreduced retirement benefit at age 50 with at least 25 years of service credit or age 60 with at least five years of service credit. For VRS members, normal retirement age is age 65 for Plan 1 members and normal Social Security retirement age for Plan 2 and Hybrid Plan members. A Plan 1 member becomes eligible for an unreduced retirement benefit at age 65 with at least five years of service credit or at age 50 with at least 30 years of service credit. A Plan 2 or Hybrid Plan member becomes eligible for an unreduced retirement benefit at the member’s normal Social Security retirement age with at least five years of service credit or when the member’s age plus the member’s years of service credit equal 90. There is no mandatory retirement age for VaLORS or VRS members.
SPORS and VaLORS both provide members a higher retirement multiplier than the retirement multiplier used to calculate the retirement benefit for VRS members, which allows law-enforcement officers to retire earlier as it results in higher income replacement for each year of service credit earned by a law-enforcement officer. For SPORS, the retirement multiplier is 1.85% (local employers providing enhanced benefits to law-enforcement officers can choose a retirement multiplier of either 1.7% or 1.85%). The retirement multiplier for the majority of VaLORS members is 2.0%. For VRS members, the retirement multiplier is 1.7% for Plan 1 members, 1.65% for Plan 2 members, and 1.0% for Hybrid Plan members.
Hazardous Duty Supplement
Members of SPORS, certain members of VaLORS, and local law-enforcement officers whose employers are providing SPORS-like benefits who retire with at least 20 years of hazardous duty service credit will also receive a hazardous duty supplement, which is a dollar amount added to the officer’s monthly retirement payment. The current amount of the hazardous duty supplement $16,884 per year. Once an officer is credited with at least 20 years of hazardous duty service, the officer generally retains eligibility for the supplement if the officer moves to a nonhazardous duty position. A retired officer will continue to receive the hazardous duty supplement until the officer reaches normal Social Security retirement age or, for members of VaLORS eligible for the hazardous duty supplement, age 65. The hazardous duty supplement was first added as a benefit in SPORS in 1966 and was created as a method to provide retired law-enforcement officers with a bridge to Social Security in recognition of the fact that many officers retire well before they would be eligible to receive Social Security benefits.
Background – Return to Work
Return to work provisions in Virginia, such as those suggested by the report mandate and those implemented beginning with the teacher critical shortage return to work exception in 2001, are in response to the challenges public employers described when recruiting and retaining qualified employees.
In 2017, in response to state agencies’ indication that recruiting and retaining qualified employees was difficult, the Joint Legislative Audit and Review Commission published their report, Total Compensation for State Employees, 2017 (RD116)- November 13, 2017, reviewing total compensation across the Commonwealth. JLARC made several recommendations in that report, generally focused on the importance of employee compensation and, in part, to “identify cost-effective approaches to ensure agencies can employ an effective workforce." The report found that more employees named salary as the most important factor in compensation over health insurance as the next most important factor. The report also indicated that employees gave salary dissatisfaction as the most common reason for considering leaving a job in the next year.
When considering opportunities to affect recruitment and retention of employees using retirement benefits as a tool, it is essential to understand that return to work exceptions generally do not improve recruitment or retention, and may negatively impact the VRS Trust Fund due to potential changes in retirement patterns that can result in paying benefits longer than anticipated. Conversely, higher salaries translate into overall higher retirement benefits, with minimal, if any, impact to the VRS Trust Fund.
Current Return To Work Provisions
Return to work refers to a retiree returning to post-retirement employment with the same employer or another employer in the same retirement system after a bona fide break in service while continuing to receive a retirement benefit. The current return-to-work provisions allowed by Virginia law and VRS policy provide considerable flexibility.
• Retirees can choose to stop their retirement benefit and return to full-time active employment, thereby earning additional service credit.
• Alternatively, there are several additional exceptions that allow a retiree to return to work with a VRS-covered employer and continue to receive retirement benefits. As long as there is no prearrangement, a retiree can accept:
(i) a part-time position with the same VRS-participating employer they retired from in which the retiree can work up to 80 percent of full-time employment after the required one full calendar month break in service or with a different VRS-participating employer with no break in service;
(ii) an interim position with a VRS-participating employer that typically lasts no longer than six months after the required one full calendar month break in service and approval from VRS; or
(iii) a full-time position in one of the four categories allowed under the Code of Virginia after the required six consecutive calendar month break in service.
To comply with IRS guidance, service in any capacity for a VRS-participating employer, such as volunteer service, part-time work, or potentially contracting for a third-party and assigned to the same employer from which the member retired, does not count toward a bona fide break in service. A bona fide break in service requires a complete severance of employment with any VRS-participating employer.
The General Assembly recently passed legislation reducing the required break in service from 12 months to six months before certain retirees can return to work full time in positions set out in § 51.1-155(B)(3) and (4) of the Code of Virginia. These changes are significant because, as discussed in the 2022 report, changes to the length of the break in service could impact retirement patterns and thereby affect the VRS funded status and contribution rates. The bond rating agencies look skeptically on plan sponsors and employers that do not fully fund the actuarially determined required contributions (ADC) which in turn could impact bond ratings. Given that these changes just took effect, VRS has not had sufficient time to compile reliable data regarding the impact of these changes.
The Commonwealth has appropriated funds over the past several years to provide cash infusions for the VRS Trust Fund. These infusions were intended to help bring down the Fund’s unfunded liability. It is likely that policy changes allowing retirees to return to work sooner and still stay within the requirements of federal law will have both an immediate and long-term impact on the unfunded liability of the Fund and on employer contribution rates that can be expected to potentially negate or at best minimize of the effect of the recent cash infusions.
Federal Law and Internal Revenue Service Guidance
The fundamental element of any return-to-work provision is the bona fide break in service required by the IRS, i.e., the amount of time a retiree must have been separated from employment without a prearranged agreement with the employer to reemploy. The one exception, if the plan documents authorize it, is in-service distributions with no break in service allowed by the IRS at normal retirement age but no earlier than age 59 ½ to avoid a tax penalty.
The IRS has provided limited guidance regarding when a retiree may return to covered employment while still being considered retired. The IRS utilizes a facts and circumstances test to determine if there is a bona fide break in service. This serves to protect the retirement plan from violating IRC rules related to prearrangement, proper federal tax reporting and withholding and from unexpected and detrimental changes in retirement patterns, and to prevent double dipping, or even triple-dipping if a retiree also receives the hazardous duty supplement or cost of living adjustments.
Section 401 of the Internal Revenue Code (IRC) establishes numerous requirements that VRS as a qualified governmental plan must comply with in order to qualify for favorable tax provisions. These requirements include when and how a retiree may return to work for a system employer following retirement while continuing to receive a retirement benefit (an “in-service distribution"). While the IRC allows in-service distributions without a tax penalty with no break in service as early as age 59½, VRS is aware of only one public plan that allows in-service distribution at age 59½, and the policy option discussed in this report generally proposes to use existing VRS Normal Retirement Age as the threshold to minimize impacts to the plan.
Law Enforcement Staffing Levels
The genesis of this report is recent concerns raised by policymakers about agency-reported staffing shortages being experienced by law-enforcement agencies. For example, on October 17, 2022, Governor Youngkin announced his Bold Blue Line Initiative. Among the stated goals of the Initiative is to support the recruitment of new law-enforcement officers to compensate for staffing shortages.
At a national level, a recent report from the Congressional Research Service (CRS), Congressional Research Service, State and Local Law Enforcement Officer Staffing (Sept. 12, 2022), finds that the rate of full-time law-enforcement officers per 1,000 people has remained relatively consistent over the past decade. The CRS found that the rate of full-time law-enforcement officers per 1,000 people was 2.1 in 2012 through 2017, rose to 2.2 for 2018 through 2020, and returned to 2.1 in 2021. CRS’ report notes that the data provides insight into changes in law-enforcement staffing at a national level, but it does not demonstrate what individual agencies may be experiencing.
Determining current law-enforcement staffing levels in Virginia poses some challenges. There is currently no comprehensive source for data on vacant full-time law-enforcement officer positions throughout the Commonwealth. The Virginia Compensation Board maintains data on authorized positions in sheriffs’ offices and DCJS maintains data on the number of certified law-enforcement officers in the Commonwealth; however, there are certain limitations on this data. For example, DCJS’ data comes from its system (TRACER) that was designed to track law-enforcement officer training records, not the law-enforcement officer population.
DCJS also provided vacancy data from police departments in 12 cities collected as a part of the Governor’s Bold Blue Line Initiative. The vacancy rates in these cities range from 3% to 36% for full-time law-enforcement officer positions. In addition, vacancy rate data for sheriffs’ offices were provided by the Virginia Compensation Board and the Virginia Association for Chiefs of Police surveyed its member agencies for vacancy rate data for full-time law-enforcement officer positions. According to the data, sheriffs’ offices have a vacancy rate of approximately 19% and the vacancy rate among the 97 police departments that responded to this survey is approximately 13%, though the vacancy rates of individual agencies vary based on size and agency type.
Employment of Retired Law-Enforcement Officers
An important point to consider when determining whether to permit retired law-enforcement officers to return to work in full-time law-enforcement positions is the underlying rationale for the enhanced retirement benefits provided to law-enforcement officers. As discussed at length above, the current retirement benefits afforded most law-enforcement officers in the Commonwealth (early retirement age; shorter service requirement; higher retirement multiplier; hazardous duty supplement) were designed to compensate for the risks, both physical and mental, experienced on the job by law-enforcement officers, as well as to permit earlier retirement of officers before there is any decline in their ability to physically perform the duties of a law-enforcement officer. Allowing retired law-enforcement officers to return to work full-time as a law-enforcement officer may suggest that the underlying assumptions upon which enhanced retirement benefits for law-enforcement officers could be revisited in light of changed circumstances since the initial provision of enhanced retirement benefits.
Also, while addressing whether retired law-enforcement officers are capable of performing certain law-enforcement duties is beyond the scope of this report, the current state of Virginia law renders such an analysis of the effectiveness and efficacy of employing retired law-enforcement officers in different law-enforcement positions an impossible task. While in practice, officers working at a law-enforcement agency are assigned to different duties and functions, Virginia law does not distinguish between law-enforcement officers based on the types of duties the officers perform. Virginia law requires that all officers must be certified through DCJS and must successfully complete the training requirements established by the Code of Virginia and DCJS, but Virginia law only provides for one type of law-enforcement certification and no distinction is made based on the type of work to be performed.
In general, all law-enforcement officers in the Commonwealth are tasked with the same broad fundamental duties and authority. Thus, although an agency may intend to assign a retired officer who has returned to work to a role that is assumed to be less physically demanding than a typical assignment, such as investigating cold cases, that retired officer will still be expected, when feasible, to respond to all situations they encounter necessitating a law-enforcement response. In fact, an officer’s public duty to uphold the law may extend while they are off duty.
Finally, there is no current mechanism under Virginia law to limit retired law-enforcement officers who return to work from working in certain law-enforcement capacities or to track what capacities in which retired law-enforcement officers who return to work are employed.