Chapter 3: Service Credit
Overview
What Is Service Credit
An employee working for you in a position covered by a retirement system earns service credit toward his or her retirement. The amount of service credit an employee earns is based on the time he or she works. For all plans except TRS Plan 1, no more than one month of service may be granted for any calendar month. For TRS Plan 1, no more than one year of service may be granted for any fiscal year.
The Importance of Service Credit
A member must earn service credit in order to qualify for a service retirement benefit. Service credit is used to calculate the amount of a member's monthly retirement benefit. In order to ensure service credit is recorded correctly, employers must report hours or days of service to DRS each month.
A member's monthly retirement benefit is based on both accumulated service credit and average final compensation (AFC) or salary. To determine accumulated service credit, all the years and months of service credit the member earned while working in a given system are added together. To determine the AFC or salary, DRS averages the member's highest-paid consecutive months or years of earnings. (The period used for calculating the AFC or salary varies between systems and plans.)
Example:
In PERS Plan 2, PSERS Plan 2, SERS Plan 2, TRS Plan 2 and LEOFF Plan 2, the monthly retirement benefit is calculated using the following formula:
2 percent x service credit years x average final compensation equals monthly benefit
Note: The AFC for PERS Plan 2, PSERS Plan 2, SERS Plan 2, TRS Plan 2 and LEOFF Plan 2 is the monthly average of the 60 consecutive highest paid service credit months.
The following examples show the importance of service credit in calculating retirement benefits. Qualifications for retirement and the percentages used in benefit calculations vary between systems and plans. For more information, members should refer to the member handbooks.
Examples of Retirement Benefit Calculations
A PERS Plan 2 member retires at age 65 with 25 years service credit and a monthly AFC of $2500. The member's monthly retirement benefit will be $1250.
2% x 25 years = 50%
50% x $2500 = $1250
A second PERS Plan 2 member retires at age 65 with 20 years service credit and the same AFC. The member's monthly retirement benefit will be $1000.
2% x 20 years = 40%
40% x $2500 = $1000
The Importance of Service Credit in Prior Periods
From January 1987 through August 1991, service credit carried additional importance for employers. During that period, for members of PERS Plan 1 and Plan 2, TRS Plan 2 and LEOFF Plan 2, contributions were not due unless service credit was earned. An employer determined whether an employee had earned service credit each month before deciding to pay employer and employee contributions. For details about service credit rules for prior periods, refer to the information on Service Credit and Contributions for each system later in this chapter.