Purchasing Service Credit

Overview

Service Credit Purchases

Eligible Service Credit Purchases Increase Your Retirement Benefit

Your pension is based on your age at retirement, your final average salary, and your total retirement service credit. The more years of retirement service credit you have, the greater your benefit.

You may be eligible to “buy” service time when you were not contributing to CCCERA, thus increasing your retirement benefit.

If you are considering a service credit purchase, a general rule to remember is this: time during which you made contributions is not purchasable, whether you were a member of CCCERA, or other public retirement system, unless you withdrew your funds and no longer qualify to receive a benefit.

Members who are interested in purchasing service credit should request an estimate of the cost from CCCERA. You can make this request by phone, or complete a Request for Retirement Estimate (Form 108) by mail. Most necessary information is available to CCCERA, but you may be asked later for documentation if you decide to enter into a contract to purchase service.

After a retirement counselor calculates your cost estimate, CCCERA will send you a letter explaining your options. At that time, you can make an appointment with your counselor to clarify any issues you may have, decide on the amount of time to purchase, make payment arrangements and sign a contract.

Categories of Purchasable Time

  • Time Prior to Membership with CCCERA: If you worked for a participating employer (special district) or Contra Costa County, and were not eligible for CCCERA membership, you may purchase service credit for the time you worked. Examples of ineligible positions are part-time (less that 20 hours per week), certain job classifications such as permanent intermittent, or temporary. 
  • Medical Leave of Absence: CCCERA members returning to active service following an unpaid medical leave of absence, can purchase up to 12 consecutive months of time. 
  • Military Leave: Time spent in military service may be purchased if you were a member of CCCERA when you (resigned or obtained a leave of absence) left to serve in the military, and returned to CCCERA membership within 90 days of your honorable discharge. If you served in the military prior to CCCERA membership, you may be able to purchased this time as public service time.
  • Public Service: If you were employed by a public service agency prior to your membership with CCCERA, you may be eligible to purchase this time with CCCERA, if your former public employer does not offer reciprocity with CCCERA, or accept re-deposits of contributions that were refunded to you at the time of
    termination from their plan. 

To purchase public service time you cannot be eligible to receive a retirement benefit from the public agency you were previously employed by. Examples of public service agencies are the Federal government, other county or city governments in California, and special districts, such as water or sanitary districts.

How to Purchase Service Credit

Service credit purchases follow a complex set of laws and regulations established by the 1937 Act. Generally, the costs to purchase service credit fall into two categories, depending on the type of eligible credit.

  1. You must pay your contributions and interest that would have accrued during the time periods you are purchasing, or
  2. You must pay your contributions plus your employer’s contributions and interest that would have accrued on both amounts.

Purchases can be made with post-tax dollars.

Your Payment Options

  1. One lump sum payment for the full amount; 
  2. Monthly payroll deductions; 
  3. A combination lump sum “down payment,” then monthly payroll deductions to complete the contract; 
  4. Fund transfer from another eligible retirement plan, such as a 457 plan.

The purchase contract term usually cannot exceed the length of time you are buying (for example, conversions from Tier 2 service to Tier 3 are an exception). In addition, the maximum contract time for buying any amount of service is five years.

All payroll deduction service contracts must be paid in full by your retirement date, or date of termination. However, you may be able to purchase service credit with an after-tax lump sum payment, up to 120 days after your retirement date.

Service credit is posted to your account immediately if your payment is a lump sum. When purchasing by monthly payroll deduction, service credit is posted to your account as you make payments. For more information on purchases and payment rules, see the Service Purchase Brochure available from the CCCERA.

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Rollovers

A rollover is a transfer of your contributions and interest from one “qualified” plan into another “qualified” retirement plan or IRA (Individual Retirement Account). A direct rollover means the money transfers directly from plan to plan, without ever passing through your hands, thus deferring possible tax liability until you withdraw the funds later. A “qualified” retirement plan means a plan approved by the IRS (Internal Revenue Service) under Code 401(a), 403(a) or 457(b).

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Redeposits After a Domestic Relations Order

If you are required to divide accumulated service credit due to a divorce or domestic partnership dissolution court-ordered settlement, you may be able to purchase the service credit awarded your ex-spouse or registered domestic partner, with a redeposit.

Since separate accounts are created for both individuals, redepositing contributions and interest may be possible for both member and/or non-member (former spouse/domestic partner) in order to restore each account to pre-DRO levels, under very specific circumstances.

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Redeposit Payment Options

Redeposits must be for the entire amount of previous service with post-tax funds. However, you can pay the amount owed in installments. You can redeposit your funds by:

  • Lump sum payment,
  • Payroll deduction,
  • A combination of both methods,
  • A trustee-to-trustee transfer (a “rollover”)

If you are unable to complete your redeposit for any reason (including disability or death), the contributions plus interest you paid into your account will be refunded and service credit will not be reinstated.

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Redeposits after Re-employment

A redeposit re-establishes your retirement account to pre-termination levels. You return the contribution amounts you withdrew, plus the interest the funds would have earned during your absence from membership. Once these funds are redeposited into your account, your original service credit is reinstated.

Redepositing can be a good financial decision, because it restores your retirement service credit. As your career continues, you have these credits to build on, giving you a higher benefit when you retire. (Higher service credit at retirement equals a better benefit.)

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Another Way to Pay: 457 Trustee to Trustee Transfers (Direct Rollover)

Tax deferred 457 retirement plan contributions can be used to purchase eligible service credit, or convert eligible service credit to a different retirement tier. The process is very specific.

Rules must be followed accurately to insure compliance and protect your tax deferred status. Members who have funds in an employer sponsored Deferred Compensation 457 account may want to consider this option.

Individual retirement plans may have different regulations, and may or may not accept, or provide for all qualified plan transfers.

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Post-Tax Payments

  • Taxes are paid on income while you are working.
  • Post-tax payments do not lower your current income for tax purposes.
  • Contract timing and amounts can be changed, if you choose. 
  • Contracts can be stopped completely.

Interest is calculated on your service credit purchase

The cost of your service credit includes the interest your contributions would have earned, had they been on deposit with CCCERA, from the date you became a member to the date your purchase contract commenced, or lump sum payment was accepted.

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