If you're eligible to purchase service credit, you'll receive a cost package from CalPERS in the mail. Review the information within the cost package; then complete, sign, and return your election form to CalPERS to purchase service credit. The form is irrevocable and will be valid only if received within 60 days. If the form isn't received within 60 days, you must submit a new request for cost information, which may affect your eligibility and the cost to purchase service credit.

CalPERS offers the following service credit payment options:

State employees can pay for converting their past Second Tier service through the Actuarial Equivalent Reduction (AER). Instead of making a lump sum payment or monthly installments for a fixed term, you can accept a permanent reduction to your monthly retirement benefit. AER is only available for Second Tier conversion payments.

You can elect AER any time before retirement, but the actual reduction will be based on your age at retirement. Once you make the election:

  • If you retire and AER is applied, you cannot pay off the balance or chose another payment method.
  • Interest continues to accrue until AER is applied at retirement.
  • You'll lock in the current interest rate in effect.
  • Your election to convert to First Tier is permanent.

AER is not reported as taxable income because taxes are based on the gross allowance after the AER is applied.

Survivor Benefits

AER is a reduction for the member's lifetime and the lifetime of any beneficiary receiving a monthly allowance. If you elect AER and die before retiring, your pre-retirement death benefits will be based on the First Tier formula. If your survivors are entitled to a lifetime option benefits, they'll still be responsible for the reduction. The AER is based on their age rather than yours. AER does not affect Survivor Continuance.

You can pay for your service credit purchase with installment payments for up to 180 monthly payroll periods (or the equivalent based on your pay frequency). You may be eligible to make payments on a taxed or tax deferred basis. Review the Tax Payments or Tax Deferred Payments sections below.

Your maximum payment length will be based on your current pay type and the amount owed:

Payment Type Payment Length
Monthly 1-180 payments
Quad-weekly 1-195 payments
Semi-monthly 1-360 payments
Bi-weekly 1-390 payments

The minimum payment is $15 per month or the equivalent if paid other than monthly.

Initial Payments

You may make an initial payment and then pay the remaining balance through installment payments. Your initial payment may be submitted following the same instructions under Lump Sum Payments.

CalPERS will accept a rollover or transfer from a qualified fund as an intial payment or lump sum such as:

  • 401(k), 401(a), or IRA plans
  • 403(a) or 403(b) plans
  • Governmental 457 plans
  • Conduit IRAs that originated from qualified 403(a), 403(b), or governmental 457 plans and have not been commingled with any other funds
  • Traditional Contributory IRAs, including SEP IRAs and Keogh IRAs (Roth IRAs don't qualify)

Taxed Payments

You are eligible to make taxed installment payments through payroll deductions if you are an active member with payroll being reported to CalPERS. The installment payment deductions are taken after taxes are applied to your earnings, so the deduction amount has been taxed. You have the flexibility to pay additional payments or pay off the balance at any time.

Tax Deferred Payments

When making installment payments for your service credit purchase, you may be eligible to make tax deferred installment payments through payroll deductions. This plan allows you to defer the income tax liability of your payments through payroll deductions. If you elect to make tax deferred installment payments, you do not have the ability to make additional payments or pay off the balance early.

The tax deferred installment payment option is available to all state employees. If you work for a school or public agency, ask your employer if the option is available to you. Part-time California National Guard members aren't eligible.

How It Works

You'll be required to sign a binding, irrevocable election with CalPERS. We'll then notify your employer to begin taking payroll deductions.

If you elect to make taxed installment payments:

  • The number of payments may be changed.
  • The payroll deduction schedule may be altered.
  • The total amount due may be paid off early.
  • You cannot change to tax deferred deductions.
  • If overpayment occurs, we'll authorize your employer to refund the overpayment.

If you elect to make tax deferred installment payments:

  • The number of payments cannot be changed.
  • The payroll deduction schedule cannot be altered.
  • The total amount due cannot be paid off early.
  • You cannot change to taxed deductions.
  • If overpayment occurs, we'll authorize your employer to refund the overpayment to you as taxable income.

If you leave CalPERS-covered employment, you can continue your service credit payments through a direct payment plan. If you retire, payments will continue through a benefit roll deduction. In both instances, these payments will be converted to a taxed basis. At that time, you can choose to make a full or partial payment for the balance owed.

You can make one payment to CalPERS to cover the cost of your service credit purchase. Submit a Service Credit Purchase Payoff Request (PDF) to get your payoff amount. You cannot submit more than the lump sum amount shown. When your election and lump sum payment are received, we'll send you an acknowledgement letter.

Keep in mind when making your lump sum payment:

  • If the check has more than one name, circle the member's name.
  • Personal checks are acceptable; do not submit two-party checks.
  • Your check should be made payable to CalPERS.

CalPERS also accepts plan-to-plan transfers or rollovers from a tax qualified eligible retirement plan as a payment. If you're considering this option, be sure to review the specific rules for using this payment method.

Plan-to-plan transfers and rollovers allow you to continue deferring income taxes on your retirement savings. You can transfer tax deferred funds from an eligible retirement plan to another, generally without taxes or penalties.

Eligible plans as defined by Internal Revenue Code (Code) section 402(c)(8)(B) include:

  • 401(a) and 401(k) plans
  • 403(a) and 403(b) plans
  • Governmental 457 plans
  • Conduit IRAs that originated from a qualified 401(a), 401(k), 403(a), 403(b), or governmental 457 plan and haven't been commingled with any other funds
  • Traditional/Contributory IRAs, including SEP IRAs and Keogh IRAs (Roth IRAs don't qualify)

Plan-to-plan Transfer

Is an in-service transfer of funds from one eligible retirement plan directly to another at your request prior to separation from the employer where the plan is maintained. There's no distribution upon transfer, nor taxes triggered.

Rollover

Is a transfer of money after a distribution event occurs (i.e., death, disability, retirement, or separation). Rollovers can be either direct or indirect.

  • A direct rollover is like a plan-to-plan transfer to the extent that funds are transferred directly from one eligible retirement plan to another.
  • An indirect rollover occurs after you have received an actual distribution of the funds. You have 60 days from date of receipt of the funds to roll them over to an eligible retirement plan. If you don't rollover the funds to an eligible retirement plan within the 60-day period, the distribution is included in your gross income at the time the distribution was made.

Plan-to-plan transfers and rollovers from eligible retirement plans may be used as payment on the amount due CalPERS for a service credit conversion or purchase.

Funds received as a beneficiary of a deceased spouse may be accepted if accompanied by certification of entitlement to those funds in addition to the plan certification requested below. Contact us for additional entitlement certification information if this is your situation.

We can accept a CalHR Savings Plus Program (SPP) transfer. View their Purchase of Service Credit (PDF) form or call 855-616-4776.

We don't initiate the transfer of funds or complete documents to draw your funds. You're responsible for obtaining certification from your plan administrator that your plan is an eligible retirement plan. Contact the plan prior to starting the transfer or rollover process to confirm the fund type, and, if eligible, obtain their distribution request document.

Processing Your Rollover

If you didn't receive service credit cost or payoff information, contact us.
Once you have confirmed your funds will be from an eligible retirement plan, you need to:

  • Complete any transfer/rollover distribution form required by your plan. We can't make this request.
  • Complete the appropriate certification for each plan you wish to transfer or rollover:
  • Request distribution and completion of the plan portion of the Certification Form from your eligible retirement plan. Ask for the distribution check to be made payable to "CalPERS, FBO your name" (For Benefit Of) and mailed with the completed Certification Form directly to you (not to CalPERS).
  • If your plan requires a Letter of Acceptance, provide CalPERS a properly completed Certification Form with your request that a Letter of Acceptance be issued.
  • Funds received as an indirect rollover may be acceptable if accompanied by sufficient certification. Contact us for instructions and the additional certification form if this is your situation.

Upon receipt of the check and Certification Form, make a copy of all forms for your records. Then, mail the check with the completed Certification and original Election Document or the payoff document to us.

We can't accept funds without proper documentation. If a check is received without the completed Election Document or payoff documents and Certification Form or comparable certification, the check and all forms will be returned to you as incomplete and you will need to submit a completed package prior to the expiration date.

Modifying Your Payment Plan

You may be eligible to modify an existing payment plan under specific conditions. Review this information to determine if you qualify. Eligible members can request a change, cancellation, or suspension online through Questions, Comments, & Complaints or by mail to:

CalPERS Member Account Management Division
P.O. Box 942704
Sacramento, CA 94229-2704

If you're paying for more than one service credit purchase, your request should include:

  • The type of service credit you purchased
  • Approximate start date of payments
  • Installment payment amount(s) you want to change
  • Payment type

Active and inactive members may cancel a taxed installment payment plan  at any time prior to retirement. A cancellation is effective the first of the month after it's approved. The service credit purchased by your original election will be reduced in proportion to the balance of the total amount remaining unpaid, including interest, while the original election will remain in effect for payments already made.

Cancellations are not available for the following reasons or purchase types:

  • A service credit purchase subject to a community property division by way of court judgment, domestic relations, or other court order or settlement agreement
  • A tier conversion election
  • Contributions or service credit adjustments required by law or agreement
  • Retirees
  • Tax deferred service credit purchase payment plans (refer to Internal Revenue Code 414 (h) (2))

If you retire on disability or industrial disability, and your service credit purchase does not increase your monthly allowance payable as determined by our Benefit Services Division, you may request cancellation of your monthly installment payments on a prospective basis. Should you be granted a cancellation of your service credit purchase installment payments and you later reinstate to active CalPERS-covered employment, you will be required to resume the previously cancelled payments, including additional interest through the completion of those payments.

Your election document shows the minimum monthly payment plan available. You can make larger payments, but you cannot decrease the minimum payment amount. To make a change, write in your preferred payment amount on your election.

Suspension requests may be approved for a 12-month period of time.

If you are an active or inactive member, you may be eligible for a temporary suspension if you selected taxed installment payments for service credit purchase(s) and have not suspended your payments within the last three years.

When you're granted a temporary suspension:

  • Interest will continue to accrue on the unpaid balance during the suspension period.
  • The account balance will be recalculated to include the additional interest at the end of the suspension period.
  • The recalculated payment plan will take into consideration payments made to date and will not exceed the maximum payment plan allowed by law.
  • Your payments will automatically resume at the end of the suspension period.

Suspensions are not available for the following:

  • A service credit purchase subject to a community property division by way of court judgment, domestic relations, or other court order or settlement agreement
  • Contributions or service credit adjustments required by law or agreement
  • Retirees
  • Tax deferred service credit purchase payment plans - Internal Revenue Code 414 (h) (2)
  • Tier conversion


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