Chapters

00:00 Introduction

00:30 Service Credit That Can Be Purchased

01:24 Overview of Purchase Process

02:35 How Cost is Calculated

03:27 Eligible Payment Sources

04:38 Paying Less Than Full Amount and Splitting Payment Sources

05:28 Action Items

06:22 Next Video Preview and Disclaimer

Transcript

Hi everyone, I'm Ryan Earley, vested PERS member, former school finance officer, and host of the PERS Pro YouTube channel. Today we're diving into the specific steps, costs, and payment strategies for purchasing optional service credit and repaying refunds. Let's get started.

In our previous video, we looked at the eight ways to accumulate service credit. While some of those, like working your regular hours or certifying unused leave, are essentially free, others require a financial investment to add to your total. Based on our earlier breakdown, here are the specific types of service that require you to buy in. Eligible non-covered service: Up to 10 years of non-covered service with a public entity of the state. Eligible out of state service: Up to five years of public non-federal service in another state public entity. Professional leave: Up to two years of approved professional leave with a public institution of a state or federal agency. Military leave of absence: Up to five years for service not covered under active duty service credit. And reinstated service: repaying a previous refund to restore your membership and years of service.

So how do you actually make this happen? The process is fairly straightforward, though the details can be quite nuanced. First, you request a cost schedule. You must contact PERS to obtain an official cost schedule or cost estimate for the service you wish to purchase or reinstate. Two, provide the required documentation. For out-of-state or non-covered service, you must provide documentation from the previous employer certifying elements like your position held, your employment dates, salary, and hours worked. For professional leave, the documentation must show the reason the employer had for granting the leave and how the professional leave benefited the employee and employer. Three, make your payments. All payments must be completed prior to your effective retirement date or your death. You cannot buy time after you have already retired or after your death. Recalculation if necessary. Cost schedules are point in time determinations. If you do not complete the purchase by the expiration date on the cost schedule, the cost must be recalculated based on your current age, service, credit, and salary at that future time.

You're probably wondering, how much is this going to cost me? There are two different cost calculation methodologies depending on what you're trying to do. Optional service credit: The cost for this purchase is based on an actuarial cost that considers your age, service credit, and salary. PERS determines the actuarial factor for your current status without the service being purchased and the factor for your status with the new service being purchased. The difference between these two amounts is multiplied by your average compensation to get the total cost. Repayment of refund: The cost for this purchase is based on the original refund you received plus interest. The interest rates you pay are outlined in Board Regulation 43. For example, the assumed interest rate as of July 1, 2023 is 7%.

Once you have your cost schedule, you have to decide how you're going to pay for it. PERS is flexible here, allowing you to purchase the service credit from different sources which have different tax treatments. Direct Payments: You can pay PERS directly using after-tax funds like checking, savings, or CDs. These payments though are not tax deductible, but they become part of your after-tax investment that is not taxed when you eventually receive your monthly retirement benefits. This treatment applies even if the member could have made a direct rollover or transfer of the funds from a pre-tax qualified plan. Rollover Payments: You can move pre-tax money from other retirement accounts, such as a 401k, 403b, 457b, or traditional IRA. However, you cannot move after-tax money from these other retirement accounts. Rollovers are generally tax-free transfers. No taxes are withheld at the time of purchase because the money stays within a qualified retirement structure. You will pay taxes on the retirement benefits tied to that purchase.

When it comes to how much you have to pay, you don't have to go all in at once. PERS allows for some flexibility in how much of the cost schedule you pay and even allows flexibility in the sources. Full vs. Partial: You can pay the full cost estimate on the cost schedule or a partial amount. However, you cannot pay more than the cost estimate and you cannot pay for less than one month of service credit at a time. Combining payment sources: You can combine both a rollover and a direct payment to cover the cost. For example, if your 401k rollover is $5,000 short of the total cost, you can write a personal check for the difference. Tax treatments will still follow what we discussed earlier for each combined payment source.

Ready to see if buying optional service credit or repaying a refund is right for you? Here are your action items for today. One, request a cost estimate. Contact PERS and ask for a cost schedule for any refund or optional service credit you are seeking to purchase. Two, evaluate your fund sources. Check the balances of any 401Ks, 403Bs, 457Bs or IRAs from previous employers to see if you have funds available for a rollover purchase. Also check the balances of any savings accounts, CDs, and taxable brokerage accounts to see if you have funds available for a direct payment. Three, consult a finance professional. If you have the funds to cover the costs, I highly recommend consulting a finance professional to determine if purchasing optional service credit or repaying a refund is right for your situation.

I hope this video helped you better understand the process, costs, and payment options when it comes to purchasing optional service credit or repaying a refund. In our next video, we'll dive into a topic that affects every single PERS member looking to retire. What is considered earned compensation for a Mississippi PERS member's highest four-year calculation? Please make sure you subscribe so you don't miss this and other videos in our new retirement series. If you found this video helpful, you can thank me by hitting the thumbs up button and sharing it with other PERS members. If you have a follow up question about PERS or anything else related to personal finance, please visit our website at perspro.ms and submit your question or topic for a future episode. Thank you for your valuable public service to the state of Mississippi. We'll see you next time.

Disclaimer, this video is for educational and informational purposes only. Neither the host nor this YouTube channel are officially affiliated with, endorsed by, or sponsored by the Public Employees Retirement System of Mississippi. Always consult a qualified professional for personal advice specific to your situation.