Purchasing Additional Service Credit
Last Updated July 2009
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Effective July 2006, eligible members may purchase additional service credit in order to increase their monthly retirement benefit. The purchased service credit cannot be used to qualify for retirement.
What is additional purchased service credit?
Purchasing additional service credit is a way to increase your monthly retirement benefit for the rest of your life and, if you choose a survivor option, the increase will continue to be paid to a survivor after your death. The additional service credit can only be purchased when you have already qualified for retirement.
Who is eligible to purchase additional service credit?
Members of the following retirement systems who already qualify for retirement are eligible to purchase additional service credit:
- Public Employees’ Retirement System (PERS) Plan 1, 2 or 3
- School Employees’ Retirement System (SERS) Plan 2 or 3
- Teachers’ Retirement System (TRS) Plan 1, 2 or 3
- Law Enforcement Officers’ and Fire Fighters’ Retirement System (LEOFF) Plan 1 or 2
- Washington State Patrol Retirement System (WSPRS) Plan 1 or 2
- Public Safety Employees’ Retirement System (PSERS) Plan 2
How much additional service credit can I purchase?
Eligible members may purchase up to five years (60 months) of service credit in whole month increments.
When can I apply to purchase additional service credit?
You must apply at the time you apply for retirement. The application must be in writing on the Request to Purchase Additional Service Credit form supplied by the Department of Retirement Systems.
If I am an inactive member and I was eligible for retirement before July 1, 2006, can I purchase service credit if I have not yet submitted a retirement application?
Yes. If you otherwise qualify, you may purchase service credit with a retirement application submitted to DRS after July 1, 2006 even if your retirement date was before July 1, 2006.
How do I pay?
Payment must be made in full in a lump sum. You may make direct payment with either a personal or cashier's check. In many cases it's also possible to transfer funds from another eligible retirement account to purchase service credit. You are advised to check with the administrator of your account to see if you can transfer those dollars. However, we cannot accept funds in excess of the cost to make your purchase. DRS is classified by the Internal Revenue Service as a 401(a) account.
When do I pay?
If you have made a request to purchase additional service credit, a bill will be created in your month of retirement. Payment must be made in full within 90 days of the bill issue date.
How can I determine how much my benefit will increase and how much will it cost?
When you purchase additional service credit, you are paying a single lump sum up front so that you will receive an increased benefit each month for the rest of your life. The amount of the benefit increase will determine your cost – the greater the increase, the higher the cost. The Office of the State Actuary provides annuity factors that are used in the calculations. These factors take into account how long you are expected to live. The following example shows how it works.
Becky is a PERS Plan 2 member who is 65 years of age and has 22 years (264 months) of service credit. Her average final compensation (AFC) is $3,000 per month. She wants to purchase five years (60 months) of additional service credit.
Step one: Calculate Becky’s monthly retirement benefit without the additional service credit. The formula is: Months of service ÷12 x 2% x AFC = monthly benefit
For Becky, this means: 264 ÷ 12 x 2% x $3,000 = $1,320
Step two: Calculate the monthly benefit increase provided by the additional service credit. 60 ÷ 12 x 2% x $3,000 = $300
Step three: Determine the cost to purchase the additional service credit. To do this, divide the amount of the benefit increase by the appropriate annuity factor for Becky’s system, plan and age.
For Becky, this means: $300 ÷ 0.0069798 = $42,981.17
So, for a total cost of $42,981.17, Becky would increase her monthly benefit by $300. Her monthly benefit would go from $1,320 to $1,620 per month.
Note: If Becky retires before age 65, her monthly retirement benefit and the monthly increase provided by the additional service credit would be reduced by an early retirement factor.
Can I use purchased service credit to qualify for retirement?
No. You can only use earned membership service to meet the eligibility requirements for normal retirement or early retirement. If you are retiring early, the reduction factor you qualify for is based only on your earned membership service, and does not include any additional service credit you purchase at retirement.
Can I purchase additional service credit if I am retiring from a retirement plan that does not allow me to receive a monthly retirement benefit that exceeds 60 percent or 75 percent of my average final compensation?
Yes. The 60 percent or 75 percent maximum applies only to your monthly retirement benefit. The purchase of additional service credit will provide you an additional amount that will be added to your monthly retirement benefit.
Will my survivors receive the additional benefit of the purchased service credit?
If you select a survivor benefit option on your monthly retirement benefit, your survivor will receive the increase resulting from the purchase of additional service credit.
Will the money I paid to purchase the additional service credit be refunded to my beneficiary or estate if I die?
This depends on whether you are a Plan 1, Plan 2 or a Plan 3 member and whether you select a survivor to receive a continuing monthly benefit. If you select a survivor to continue to receive all or a portion of your monthly retirement benefit, no refund will be made.
If you do not select a survivor option, are a Plan 1 or Plan 2 retiree, and there is money in your account to be refunded, the cost to purchase additional service credit will be included in the refund amount. If you do not select a survivor option and you are a Plan 3 retiree, the cost to purchase the additional service credit will not be refunded because your payment goes into the Plan 3 trust fund and not into your individual account.
If I am retiring for disability, can I purchase additional service credit?
Members retiring as a result of a disability may be eligible to purchase additional service credit. Contact DRS for information regarding your unique circumstances.
If I’m combining service earned in two DRS-covered retirement systems, will I be eligible to purchase additional service credit?
Yes. You may purchase up to five years, or 60 months, to increase your monthly benefit in each system and plan from which you retire for service under the portability rules. For more information on combining service credit from two DRS-covered systems, see the brochure, What is dual membership and how does it affect me?
When will my benefit increase?
Your benefit will increase once payment is received in full. At that time, you will receive the increased benefit retroactive to your retirement date.
Will Cost-of-Living Adjustments (COLAs) be applied to the purchased service credit monthly increase?
COLAs will be applied to the monthly purchased service credit increase if you retire from any system and plan except PERS Plan 1 or TRS Plan 1. If you retire from PERS Plan 1 or TRS Plan 1, you will only receive a COLA if you select the auto COLA option at the time you retire.
Is there a way to determine if this purchase is beneficial to me?
There is no single program or product to provide this information. A calculator is available within Online Account Access, or, if you are within two years of retirement, you may contact a Retirement Services Analyst at DRS to obtain an estimate of the cost of the additional service credit and the monthly amount it would provide. We recommend that you discuss this option with your financial adviser to determine if this purchase would be beneficial for you. Consider your overall financial situation and retirement needs very carefully before making this decision.
To Learn More
For information about purchasing additional service credit, contact DRS.
The actual provisions governing the purchase of additional service credit are contained in the Revised Code of Washington (RCW) pertaining to each specific retirement system. This brochure is a summary of those provisions, not a complete description of the law, and describes provisions currently in effect. If there are any conflicts between what is written in this brochure and what is contained in the law the applicable law will govern.