Chapters

00:00 Introduction and Overview of PERS Form PLSO

00:33 What is PERS Form PLSO Used For?

01:15 PERS Form PLSO Timeline and Important Deadline

02:27 PERS Form PLSO Section 1: Applicant Information

03:23 PERS Form PLSO Section 2: Retirement Plan

04:17 PERS Form PLSO Section 3: Partial Lump Sum Option Distribution Payment Selection

06:27 Partial Lump Sum Payment Selection: Tax and Penalty Implications

07:22 Exceptions to IRS 10% Early Distribution Penalty

08:59 Example #1: Cash Lump Sum at Age 52 (Option A)

10:17 Example #2: Cash Lump Sum at Age 55 (Option A; Separation of Service Exception))

11:28 Example #3: Rollover into 457(b) at Age 48 (Option B; Rollover Exception)

12:44 Example #4: Rollover into Roth IRA at Age 61 (Option B; Tax Trap)

14:01 PERS Form PLSO Section 4: Applicant Authorization

14:36 PERS Form PLSO Section 5: Trustee/Custodian Agreement to Accept Rollover of Partial Lump Sum Distribution

15:41 How to Submit PERS Form PLSO

16:19 Action Items for PERS Retirees Completing Form PLSO

17:27 Preview of Next Video and Calls to Action

18:50 Legal Disclaimer

TRANSCRIPT

Hi everyone, I'm Ryan Earley, vested PERS member, former Public School Finance Officer, Current Financial Planner, and host of the PERS Pro YouTube channel. Today we are walking through PERS Form PLSO Partial Lump Sum Option Distribution Election, as well as explaining the tax implications of your payment selection through four real-world examples. Let's get started.

Before we begin our review of the form section by section, let's look at exactly what form PLSO does and the timeline you need to be aware of. As outlined in the Mississippi Purse Member Handbook and Retiree Handbook, the partial lump sum option allows eligible members to receive an upfront cash lump sum equal to 12, 24, or 36 months of their base monthly maximum retirement allowance. 

If you haven't already, please go back and watch video number 45 for an overview of the partial lump sum option, including how you become eligible. Please watch video 47 if you are still deciding whether you should take a partial lump sum option. 

Your retirement is governed by a two-phase application process defined under PERS Regulation 35. As we reviewed in video number 56, you first file your Form 9A pre-application for service retirement benefits to initiate an account audit. Once processed by PERS, you receive your phase two retirement packet containing your official audited final estimate of benefits, Form 9S service retirement application, Form 9P payroll authorization, and if eligible, Form PLSO Partial Lump Sum Option Distribution Election. 

Form PLSO should ideally be filed with Form 9S and 9P before your effective date of retirement although you can file form PLSO up until 90 days following your effective date of retirement. For example, if your effective date of retirement is June 1st, then ideally you submitted your form PLSO by May 31st, but absolutely no later than August 30th. If you miss this 90-day window, your application becomes completely null and void, and you will have to restart the entire application process resulting in a new delayed effective date of retirement. 

Let's now look at the actual form, starting with Section 1, Applicant Information. Just like Form 9S, be sure to legibly print or type in a fillable PDF using black ink. The first thing you must do is check whether the applicant is the member or a beneficiary of a deceased member. Then you must provide your full legal name, first name, middle initial and last name. Your social security number, double check this for typos as errors can delay processing. Your email address, PERS email updates will be sent to this address and include legislative changes, retirement plan changes, and leadership updates.  Your last day of employment, if you are not actively working, this will be the last day you worked for a PERS agency.  Your phone number.  Lastly, you'll need to mark whether you are a public safety employee. This question is crucial for determining whether your partial lump sum distribution Is subject to a 10% penalty, which we will cover in more detail later in this video. 

Section 2 retirement plan is brief and fairly straightforward for most. You must select the specific retirement system administered by Mississippi PERS that you are retiring from. You will see three checkboxes: 

1) Public Employees Retirement System of Mississippi or PERS. This covers the vast majority of state employees, public school teachers, university staff, and participating local government workers.  

2) Mississippi Highway Safety Patrol Retirement System, or MHS PRS, this is exclusively for sworn officers of the Highway Safety Patrol. 

And 3) Supplemental Legislative Retirement Plan or SLRP, this applies to elected members of the state legislature and the president of the Senate. 

As a reminder, if you are a retiring lawmaker, you may be a member of both systems and must check both the PERS and SLRP boxes. For most of you watching, you will simply check the first box for PERS.

Now we arrive at section three, partial lump sum option distribution payments selection, which contains the most critical decision you need to make on this form. This section instructs PERS how to distribute the money and consequently how the IRS will tax it. You're presented with five choices labeled A through E, and making the wrong choice can trigger severe tax consequences. Let's break down each option along with federal income tax implications and potential IRS tax penalties.

First, here's an overview of each of the distribution options. Option A, full payment directly to you. PERS will cut a check for the entire partial lump sum made directly to you. 

Option B, 100% direct rollover transfer of taxable distribution. PERS will directly transfer only the entire taxable portion of the partial lump sum to a trustee or custodian of an eligible retirement plan, like a traditional IRA or employer 401k 457 plan.  Any non-taxable portion of the distribution, if there are any, would be sent directly to you. 

Option C, 100% direct rollover transfer of taxable and non-taxable distributions. PERS will directly transfer the entire partial lump sum to a trustee or custodian of an eligible retirement plan. The trustee or custodian must keep the taxable and non-taxable portions of the rollover separate. 

Option D, partial direct rollover transfer of taxable distribution.  PERS will directly transfer only some of the taxable portion of the partial lump sum to a trustee or custodian of an eligible retirement plan. The remaining taxable portion plus any non-taxable portion of the partial lump sum would be sent directly to you. 

Option E, partial direct rollover transfer of taxable and non-taxable distributions. PERS will directly transfer some of the taxable portion and some of the non-taxable portion of the partial lump sum to a trustee or custodian of an eligible retirement plan. The trustee or custodian must keep the taxable and non-taxable portions of the rollover separate. The remaining taxable and non-taxable portion of the partial lump sum would sent directly to you. 

There are tax and penalty implications you must be aware of with these five options. 

Mandatory 20% tax withholding. If you elect to receive payment directly under option A, option D, or option E PERS is legally required by the IRS to automatically withhold 20% of the taxable portion for federal income tax withholding purposes. 

Potential for extra income tax. The 20% automatic withholding is only a baseline receiving a large lump sum pushes you into a higher overall tax bracket where your effective tax rate exceeds 20%, you may owe additional federal income taxes when you file your annual return. 

10% IRS penalty. If you take a direct taxable distribution before the age of 59 and a half, you may also be subject to an additional 10% early distribution penalty levied by the IRS. However, there are three exceptions PERS members should be aware of to the early distribution penalty. Always talk to a tax professional to confirm if they apply in your situation and note these are three of the most popular exceptions of many that could apply in your situation. 

Age exception. If you are age 59 and a half or older at the time of the distribution, your partial lump sum distribution may not be subject to the 10% penalty. 

Separation from service exception or rule of 55. If you separate from service or terminate employment during or after the calendar year in which you turn age 55, your partial lump sum distribution may be exempt from the 10% penalty. This exception is reduced to age 50 if you are a public safety employee. Remember to mark this in section one above. 

Rollover exception. If you choose option B, C, D, or E, you may avoid the 10% penalty on the taxable portion of the distribution rolled over to another qualified plan. 

Special warning on Roth IRA rollovers. While rolling over a partial lump sum into a Roth IRA avoids the 10% early withdrawal penalty, it is still considered a Roth conversion. This means the entire taxable portion rolled into the Roth IRA is treated as taxable income in the year of the transfer, and you will owe ordinary federal income taxes on it when you file your annual return. 

Let's look at some examples to demonstrate how federal income taxe and the 10% early penalty would apply. 

Example one: taking the entire lump sum in cash. The scenario: Sarah is 52 years old and decides to retire from her state agency. She elects a 36-month partial lump sum option totaling $60,000 and selects option A to receive it all as cash to pay off her primary mortgage. 

The tax implications. Because Sarah chose to take direct cash, PERS is legally required to automatically withhold 20% for federal income taxes. The math, $60,000 times 20% equals $12,000 withheld. Sarah will only receive a physical check or deposit for $48,000. The 10% penalty. Since Sarah is only 52 and does not meet the IRS age or separation of service exceptions, she is hit with the additional 10% early distribution tax penalty.  The math, $60,000 times 10% equals $6,000 penalty due when she files her tax return. 

The takeaway: between ordinary income tax withholding and the early withdrawal penalty, $18,000 of Sarah's $60,000 lump sum goes straight to the IRS, and she may still owe more at the end of the year if this payout pushes her into a higher overall tax bracket. 

Example two, age 55 separation from service exception. The scenario. John is a public school teacher who turns 56 years old in October. He decides to retire at the end of the school year in June. He elects a 24-month PLSO cash payout of $40,000 to buy an RV and travel. 

Tax implications. Like Sarah, because John is taking direct cash, PERS must legally withhold the mandatory 20% baseline federal income tax withholding. The math in this case, $40,000 times 20% equals $8,000 withheld. John receives the remainder $32,000 in cash. 

The 10% penalty. John pays $0 early distribution penalties. Even though he is under the standard retirement age of 59 and a half he qualifies for the IRS separation from service exception because he left his PERS covered employer during or after the calendar year in which he turned age 55. 

The takeaway: John avoids the 10% penalty completely but he still must report the full $40,000 as ordinary taxable income on his tax return for that year. 

Example three, the direct rollover exception. The scenario Marcus is 48 years old and retiring early from his IT department role at a university. He has a 12 month PLSO of $25,000. He selects option B to execute a total 100% rollover into his existing Mississippi Deferred Comp 457B plan.

Tax implications. Because the money moves directly from trustee to trustee without Marcus ever touching it, $0 withheld for federal income tax withholding purposes. The entire $25,000 PLSO transfers into his deferred comp account intact. 

The 10% penalty. Marcus pays $0 penalties. A direct rollover to an eligible retirement plan is fully exempt from the 10% early distribution penalty. 

The takeaway.  Marcus successfully defers all federal income taxes and avoids all penalties for the time being. The money will only be taxed as ordinary income years down the road when he eventually takes standard withdrawals from his deferred comp account. However, an early distribution penalty could still apply to rollover amounts if Marcus withdraws those rollover funds from his deferred comp before age 59 and a half. 

Example four: the Roth IRA rollover trap. The scenario.  Linda is 61 years old and elects a 12-month PLSO payout of $30,000. She selects option B to roll the entire amount directly into a Roth IRA. 

Tax implications. Because she is rolling traditional pre-tax PERS funds into a post-tax Roth account this is treated as a Roth conversion. PERS will not automatically withhold the 20% for federal income taxes because it is a direct rollover, meaning the full $30,000 PLSO hits her Roth IRA. However, come next April, Linda must report that entire $30,000 as ordinary taxable income.

The 10% penalty. Linda pays $0 penalties. She is over age 59 and a half, and a rollover is exempt from early withdrawal penalty anyway.

The takeaway: if Linda is in a 22% tax bracket, she will owe the IRS $6,600 out of pocket at tax time because no money was withheld upfront by PERS. Viewers choosing a Roth IRA rollover must plan ahead to ensure they have separate savings available to cover the future tax bill. 

Next is section four, applicant authorization. By signing this section, you are legally certifying that you understand the tax implications of your selection. You certify that you received the official IRS special tax notice regarding plan payments and that you understand the 20% mandatory withholding rules. 

Sign your name on the applicant signature line and date the form. Note if an authorized representative is completing this section on your behalf, they must attach copies of the durable power of attorney, guardianship, or conservatorship papers to establish their legal authority to sign on your behalf. 

Section five is the trustee custodian agreement to accept rollover of partial lump sum distribution.  If you choose a rollover strategy under option B, C, D, or E, you cannot fill this section out yourself. You must hand this form over to the financial institution, brokerage, or retirement plan trustee that is receiving your funds. Example, Mississippi Deferred Comp 457B plan. 

An authorized officer of that financial institution must complete this section to legally certify that their plan is an eligible retirement plan capable of accepting a direct rollover from Mississippi PERS plan, they must provide the name of the institutional trustee or custodian, type of account receiving the money, example traditional IRA or Roth IRA, the account number, the mailing address where PERS should physically send the rollover check, and the authorized representative signature, title, and date. If you selected a direct rollover, do not mail this form to PERS with section five blank, or it will be rejected and delay your retirement processing.

Once Form PLSO is fully completed, signed by you, and if applicable, certified by your financial institution, what comes next? Just like Form 9S, do not give Form PLSO to your employer. Your employer has no part in facilitating this form. Submitting this form is 100% your responsibility. 

You must send the completed form in all supplementary phase two forms, including Form 9S and 9P, directly to the main PERS office in Jackson, Mississippi. You can submit via mail.  Send to the official PERS address printed at the bottom of the form, or fax, fax directly to the secure PERS fax number listed on the bottom of the form.

If you are completing form PLSO, here are your action items for today. One, coordinate with your trustee or custodian. If rolling over all or part of your funds, obtain the mailing address, email address, or fax number that your form PLSO will need to be sent to be authorized.  Be sure to account for the time it will take to send your PLSO to your financial advisor or financial institution and get it returned to you. 

Two, make sure all forms align. Review Form 9S, 9P, and PLSO side by side. Make absolutely sure your selection on form PLSO mirrors the exact 12, 24, or 36 month lump sum choice you marked on section three of Form 9S.  Also remember you cannot select a PLSO with base option one. 

Three, consult a tax and finance professional. Sit down with a qualified tax and finance professional to understand and strategically plan for the immediate and long-term income and tax implications. This is one of the rare areas where PERS specifically mentions in their literature to consult a professional, and I couldn't agree more. Not doing so could easily cost you tens of thousands of dollars.

I hope this video helps PERS members better understand how to finalize their retirement selections using Form PLSO. In our next video, we'll explore how to complete PERS Form 9P payroll authorization to ensure your ongoing monthly direct deposits land safely in your checking account every single month and the proper amount of money is withheld for federal income tax withholding purposes. 

Please make sure you subscribe so you don't miss this on 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 click YouTube, and submit your question or topic for a future episode. And finally, if you are looking for a financial planner that specializes in helping PERS members plan for retirement, including selecting a partial lump sum option distribution payment option and completing PERS form PLSO please visit our website at purspro.ms to learn more about our firm and to schedule your initial consultation. 

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.