TRS Plan 3: Using Service Credit Earned Outside Washington State

For members of the Teachers' Retirement System (TRS) Plan 3

Updated July 2018

As a member of Plan 3 of the Teachers' Retirement System in Washington state, you can use service credit you earned as an out-of-state teacher to qualify for retirement and/or increase your monthly benefit. Two programs are available to you, the Out-of-State Service Credit Program and the Public Education Experience Program.

Why might I want to join one or both of these programs?

If eligible, the Out-of-State Service Credit Program can help you qualify for an early retirement before you otherwise would. It might also help you qualify for a smaller reduction for retiring early.

If eligible, the Public Education Experience Program gives you an opportunity to make a lump sum payment to increase your monthly benefit in retirement.

What is normal retirement age?

You are eligible for normal retirement at age 65, if one of the following applies to you:

  • You have 10 or more years of service credit
  • You have five or more years of service credit and you earned at least 12 months of it after age 44

When's the soonest I can retire?

Retirement before age 65 is an early retirement.

If you have at least 10 service credit years, you can retire with a reduced benefit as early as age 55. The benefit reduction for early retirement could be smaller if you have at least 30 years of service credit.

How do I apply?

Request the form Application to Use Out-of-State Service Credit. Fill in the Member Information section. Then send the form to your previous retirement system(s). That system's representative will need to fill in the Verification Information section and send the form to DRS.

Then DRS will process your form. If approved for the Out-of-State Service Credit Program, we will send you confirmation. If approved for the Public Education Experience Program, we will send you a bill within two weeks of receiving your form.

What if I have service credit in multiple out-of-state systems?

You can use or purchase service credit from multiple out-of-state retirement systems.

However, if you do, we can only send one bill. Please mark on the form that you have service in more than one system.

Can I choose both programs?

Yes. If interested, first contact DRS to ensure you are maximizing the benefits of your out-of-state service.

Comparing the programs: Which program should I choose?

That depends on your circumstances. You can choose to participate in both programs if you want to. Consider the chart.

Definitions

Average Final Compensation
Known as AFC, this dollar figure is the average of your 60 consecutive, highest paid service credit months. AFC is used to calculate your monthly benefit in retirement.
Early Retirement Factor
Known as ERF, the factor used to calculate the reduction to a monthly benefit based on the number of months before normal retirement you choose to retire.
Normal retirement age
The age at which you can retire with a full benefit. For TRS Plan 3, that's age 65.
Service credit
The credit you receive for working in a position one of the state retirement systems covers. For details about earning service credit, review "Earning service credit" in your member handbook.
Vested
You've earned enough service credit to be eligible for retirement once meeting the applicable age requirements. For TRS Plan 3, that's 10 years or five years with at least 12 months of it earned after age 44.
Out-of-State Service Credit Program Public Education Experience Program
Cost: No cost Cost: Payment required
No. of years: No limit to how much out-of-state service credit you can use No. of years: Limit of seven years of service credit
Service credit: Service credit must be earned in an out-of-state public retirement system that covers teachers Service credit: Service credit must be earned in a federal public retirement system or a state system outside Washington state that covers teachers
Benefit: Based on Washington state service credit only Benefit: Based on both Washington state service credit and purchased service credit
Purpose: Helps you qualify for early retirement or a smaller benefit reduction Purpose: Helps you qualify for early or normal retirement and increases your monthly benefit payment
Requirement: Must be a vested member of TRS Plan 3 Requirement: Must be an active member with at least two years of TRS Plan 3 service credit

Online access: You can review your service credit details as well as update your beneficiary, email and phone information in your online retirement account.

Out-of-State Service Credit Program

If you are vested (that is, you have 10 years of service credit or five years of service credit with at least 12 months of it earned after age 44) in TRS Plan 3, you can use out-of-state service credit to retire early. To qualify, your out-of-state retirement system must be a public system that covers teachers.

If you choose this program, only your Washington state service credit will be used to calculate your monthly benefit. Your monthly benefit will be reduced for each year younger than age 65 you are. If you are seeking to reach 30 years of service credit, your monthly benefit will also be reduced for any out-of-state service credit used.

Would participating affect my out-of-state pension?

Please contact your out-of-state retirement system for more information.

What if I'm already drawing on my out-of-state pension?

You can still use your out-of-state service credit to qualify for early retirement, or the 30-year ERFs, but you won't be able to purchase the service using the Public Education Experience Program.

Will using out-of-state service credit increase my benefit?

That depends on your circumstance.

To reach 10 years: If you are already at least age 55 and have five or more years of service, you can use out-of-state credit to reach 10 years of service credit, making you eligible to retire. But it won't change the Early Retirement Factor (ERF) used to calculate your benefit.

Example

Using out-of-state service to reach 10 years

Let's say you're 57 years old and have 7 years of service credit in TRS Plan 3 in Washington state. Your Average Final Compensation (AFC) is $5,000. You also have three years of service credit in a different state's retirement system. You want to retire now. You use your three years of out-of-state service credit and the Out-of-State Service Credit Program to qualify for early retirement.

Your monthly benefit is reduced based on your age (57) and the normal retirement age (65). An ERF of 0.463 is applied because you are eight years away from age 65. Even though your out-of-state credit helps you qualify for retirement, your monthly benefit is calculated using only the 7 years of Washington state service credit. Here's your monthly benefit calculation:

1% x TRS service credit years x AFC x ERF = monthly benefit

1% x 7 x 5,000 x 0.463 = $162.05

To reach 30 years: If you want to receive your monthly benefit before age 65, having at least 30 service credit years gives you more favorable reduction factors. That means that sometimes, but not always, using out-of-state service credit to reach 30 years will increase your benefit.

To find out whether it'll help you, ask yourself: Will the difference between my age at my desired retirement date and age 65 be greater than the number of years needed to reach 30 years of service credit? If the answer is yes, using out-of-state service credit should benefit you.

Example 1

No increase

Let's say you are age 60 and have 20 years of service credit. Your AFC is $5,000, and you want to retire now.

Find the age difference: 65 - 60 = 5 years

Years needed to reach 30: 30 - 20 = 10 years

Since your age difference from 65 is less than the years needed to reach 30, using out-of-state service won't increase your benefit.


Example 2

Increase

Let's say you are age 61 and have 28 years of service credit. Your AFC is $5,000, and you want to retire now.

Find the age difference: 65 - 61 = 4 years

Years needed to reach 30: 30 - 28 = 2 years

Since your age difference from 65 is greater than the years needed to reach 30, using out-of-state service will increase your benefit.

Here's why: Without using out-of-state service credit, your monthly benefit is reduced based on your age (61) and the normal retirement age (65). An ERF of 0.672 is applied because you are four years away from age 65. Even though your out-of-state credit helps you qualify for retirement, your monthly benefit is calculated using only the 28 years of Washington state service credit.

Here's your monthly benefit calculation without the out-of-state service credit:

1% x service credit years x AFC x ERF = monthly benefit

1% x 28 x 5,000 x 0.672 = $940.80

However, if you use two years of out-of-state service to qualify for the 30-year factors, you have a choice between calculations, either the 2008 ERFs or the 3% ERFs. The 2008 ERFs provide a higher benefit but impose stricter return-to-work rules. For more information, read Thinking About Retiring Early?

Here's how to calculate the reduction:

1% x service credit years x AFC = base monthly benefit

Base benefit x Factor 1 = reduced benefit 1

Reduced benefit 1 x Factor 2 = final monthly benefit

1% x 28 x 5,000 = $1,400

1,400 x 0.817 = $1,143.80

Using the 2008 ERF: 1,143.80 x 1.00 = $1,143.80
($203 more than not using out-of-state service)

Using the 3% ERF: 1,143.80 x 0.94 = $1,075.17
($134.37 more than not using out-of-state service)

Early Retirement Factors Table
Age when you retire 10 years of service credit 30 years or more of service credit (prorated monthly)
3% ERF 2008 ERF 5% ERF*
55 0.386 0.70 0.80 0.50
56 0.423 0.73 0.83 0.55
57 0.463 0.76 0.86 0.60
58 0.507 0.79 0.89 0.65
59 0.556 0.82 0.92 0.70
60 0.611 0.85 0.95 0.75
61 0.672 0.88 0.98 0.80
62 0.741 0.91 1.00 0.85
63 0.817 0.94 1.00 0.90
64 0.903 0.97 1.00 0.95

* If you were hired on or after May 1, 2013, have 30 years of service credit and are age 55 or older, your ERF reduces your benefit by 5% for each year (prorated monthly) before age 65.

The ERFs are subject to change based on State Actuary figures. The administrative factors used in the table above are for illustrative purposes only. To review the factors, visit the complete table online.

Public Education Experience Program

If you are an active TRS Plan 3 member with at least two years of TRS service credit, you might be entitled to purchase out-of-state service credit. The service credit purchased is considered TRS Plan 3 membership service. You can use it to qualify for early or normal retirement and increase your monthly benefit. To qualify, service credit must be earned in a federal public retirement system or a state system outside Washington state that covers teachers.

If you choose this program, your Washington state service credit as well as your purchased service credit will be used to calculate your monthly benefit. To estimate the cost, use the Buy Back calculator for Public Education Experience.

How much can I purchase?

You may purchase up to seven years of service credit as long as you have at least that much in out-of-state service credit available. Purchases must be made in whole-month increments.

Multiple purchases aren't allowed. For example, if you buy four years of public education experience now, you won't be able to make another purchase later.

What type of experience qualifies for service credit purchase?

To qualify for the Public Education Experience Program:

  • You must have worked as a teacher in a public school in a different U.S. state or with the U.S. federal government
  • You must have been granted service credit for that work in a retirement system
  • You can't be retired from the out-of-state system
  • You can't be eligible for an unreduced benefit from the out-of-state system

Your out-of-state retirement system will have to verify this information on the form when you apply.

How much does it cost to purchase the service credit?

You must pay the amount needed in today's dollars to pay for the increase in your monthly benefit over your lifetime.

Example 1

Paying for the benefit increase

Let's say you are an active TRS Plan 3 member, and you are 49 years old. You currently have 17 years of service and you want to purchase three years of out-of-state service credit to reach 20 years. Your annual average salary is $50,000.

Here's how to calculate the cost of your purchase:

Part 1: Annual average salary x service credit years to purchase x Factor 1

Part 2: Annual average salary x current service credit years x (Factor 1 - Factor 2)

Total Cost: Part 1 cost + Part 2 cost

Part 1: 50,000 x 3 x 0.1995* = $29,925

Part 2: 50,000 x 17 x (0.1995 - 0.1772*) = $18,955

Total Cost: 29,925 + 18,955 = $48,880

* These factors are for illustrative purposes only. Please see the DRS website for current factors.

Part 1 pays for the added value of the service credit you plan to purchase. Part 2 pays for the increased value of your current service credit. The value of your current service credit might increase with this purchase because you might be eligible for earlier retirement, better ERFs or both. In some situations, Part 2 could cost $0.

Will buying out-of-state service affect my out-of-state pension?

Please contact your out-of-state retirement system for more information.

What if I'm already drawing on my out-of-state pension?

If you are drawing a pension from your out-of-state system, you aren't eligible to participate in the Public Education Experience Program.

How do I pay?

DRS can accept only full lump sum payments.

You can make that payment with either a personal or cashier's check. In many cases, you can transfer funds from another eligible retirement account to pay your bill as well.

However, DRS can't accept funds in excess of the cost to make your purchase. To learn more about whether you can make such a transfer, contact your account's administrator. The Internal Revenue Service classifies DRS as a 401(a) account.

Can I make installment payments?

No. DRS can accept only full lump sum payments.

When do I pay?

After DRS receives your form requesting to buy out-of-state service credit, we will send you a bill to make the purchase.

You have 90 days from the bill's issue date to pay it. If you don't pay it within that time frame, you will need to request a new bill be sent to you.

Can I retire before I send DRS my payment?

No. We must receive your full payment before you retire.

Can my employer choose to contribute to the purchase?

Yes. Your current employer can choose to help pay for your service credit purchase. Payments sent in by employers must reference your bill number.

Can I purchase this service credit if I am a substitute?

Yes. If you are working as a substitute teacher and your employer is reporting you as an active substitute, then you are eligible.

What if I quit work and withdraw my contributions?

Withdrawing your contributions won't impact your defined benefit, which funds your monthly payment in retirement, because your employer's contributions pay for that portion of your retirement plan.

DRS web tools to help you plan

Webinars
Topics: Plan 2, Deferred Compensation Program (DCP), DCP distributions, purchasing an additional benefit, investment basics, getting ready for retirement, applying for retirement, benefit payment options at retirement, returning to work after retirement and Medicare
Seminars
Topics: Preparing for retirement, Social Security, health insurance, Voluntary Employee Beneficiary Association (VEBA) and how to apply for retirement
Videos
Topics: Preparing for retirement, Social Security, health insurance, Voluntary Employee Beneficiary Association (VEBA) and how to apply for retirement
Calculators
Topics: Buy back calculator, estimating your pension, increasing your savings, IRS withholdings Social Security estimator and a ballpark calculator

This document is a summary. It is not a complete description of using out-of-state service credit. State retirement laws govern your benefit. If a conflict exists between the information in this document and what is contained in current law, the law governs.