Adding to Your Service Credit
Note: Active members hired before July 1, 2010 and still participating in the defined benefit pension plan who intend to initiate a service credit purchase must ensure the full payment for the amount of service they wish to buy or a fully completed tax-deferred payment agreement is received in our office by 5:00 p.m. EDT,
The longer you work as a member in the DB plan, the higher your pension will be.
But there are other ways to increase the years of service factor in your pension calculation. Service credit for certain other types of employment may be granted or transferred; service credit may be purchased; and service credit may be restored if you withdrew your DB pension contributions to the system after a previous period of employment and want to repay the full amount withdrawn, with interest.
General rules for service credit purchases.
Each type of service credit has specific rules, costs, and applications. Before you dig into the details though, read the following tips so you're ready to make what can be a complicated-and costly-decision.
- You must be an active member in the DB plan. Any service credit purchase or transfer must be completed while you are an active member - that is, while you are still employed by a participating public school system. The purchase must be completed before you terminate employment from a Michigan public school reporting unit. Service credit purchases can never be initiated after you've stopped working within the retirement system or after switching to the Defined Contribution (DC) plan.
- You will need to establish a wage base. You must earn at least two years of service before you're eligible to make a purchase, and some time must be earned in the immediately preceding fiscal year.
- Purchased service credit and insurance subsidies. Buying service can help you qualify for your pension earlier, but it won't necessarily help you qualify for the plan's health insurance premium subsidy earlier. If you are planning on enrolling in insurances when you retire, be sure you understand whether you will be subject to a delayed subsidy or graded premium.
- No double-dipping. When you get credit for other service, whether granted or purchased, you typically have to give up your rights to any benefit that would have been payable under the other pension system.
- You can't buy your way in. Unless you plan to retire under one of the age 60 eligibility provisions, you'll need to earn at least 15 years of service in this retirement system (transferred State of Michigan service under the Defined Benefit plan is treated as earned in this system). Most types of service credit have a maximum purchase limit, and most won't count in your pension calculation until you have earned ten years working within this system.
- A match may be required. Some service credit types have a match provision; you can't buy credit that will exceed the amount of service you will earn within this system. Say, for example, you worked for an Ohio school for 12 years, and want to purchase that service. You may purchase all 12, but you won't be credited with the service until you've "matched" with 12 years in this system. (If you purchase more than you ultimately earn, we'll refund the excess.)
- You must be vested for your purchase to count. Unless otherwise noted, most purchases won't count in your service total until you are vested. You are vested when you have sufficient service to qualify for a future monthly benefit, whether or not you continue working for a public school. Most school employees are vested after the full-time equivalent of ten years.
- With few exceptions, purchased service credit can't count toward your vesting requirement.
Buying service can help you qualify for your pension earlier, but it won't necessarily help you qualify for the plan's health insurance premium subsidy earlier. For more information refer to the Delayed Subsidy Examples.
Your purchases are part of your DB pension contributions.
Your payments for service credit are put into a separate account along with any of your contributions from earnings prior to July 1, 1977. This account is separate from your MIP or Basic 4% contributions. Interest is credited annually on your pension contributions that have been on deposit for a full school fiscal year. For details about your contribution account, click here.
If you leave public school employment before you've reached the minimum age and service requirement for a pension, you can request a refund of your pension contributions. However, you would forfeit all service and insurance subsidy eligibility those contributions represent, so it's generally not a good idea if you're vested. There is no provision for a partial refund, nor can you borrow against your pension contributions. If you die before reaching retirement eligibility, your pension contributions will be paid to your beneficiary or estate. While you're an active public school employee, use the Beneficiary Nomination form (R0315C) to let ORS know who should receive your pension contributions (or, if vested, a monthly survivor pension).
Weigh your cost versus benefit.
"Buying time" isn't always an easy decision. You have to weigh the costs, with the benefits. Fortunately, there's a terrific tool to help you decide the benefits: our benefit estimator. You can enter any number of "what-if?" scenarios, and the program will give you a pension estimate, quickly and easily.