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BENEFITS


PURCHASING SERVICE CREDIT

Purchasing service credit process

  • You complete the Purchasing Service Credit application.
  • LACERA reviews application and mails you a Cost Notification Letter and Service Credit Contract which includes payment options.
  • You review, select your payment options, sign, and return contract to LACERA.
  • LACERA will mail you a confirmation notice.
  • You may check the status of your service credit purchase by going to lacera.com, My LACERA, and reviewing your LACERA interactions.

PAYMENT OPTIONS

  • Lump-Sum Payment: a single payment for the total cost of your service credit, including interest calculated through the contract expiration date.
  • Payroll Deductions: automatic monthly deductions from your paycheck, determined by dividing the total dollar amount of your contract by the term (number of months) of your contract. Interest is calculated over the term of the contract; therefore, the total amount you pay through payroll deductions is greater than it would be through a lump-sum payment.
  • Combination Lump-Sum Payment/Payroll Deductions: allow you to pay an amount of your choice in a single upfront payment and pay off the balance of the contract through monthly payroll deductions.

FUNDS YOU MAY USE TO PURCHASE SERVICE CREDIT

Under the Pension Protection Act, service credit may be purchased

  • Payroll deductions (using before or after-tax dollars)
  • Qualified Plans: 401(k)/401(a)/KEOGH
  • 457 Fund Plan Transfers: In-Service or After Termination
  • IRAs: Non-Roth/Non-After Tax
  • 403(b)
  • After-Tax Dollars

SIGNIFICANCE OF BEFORE-TAX AND AFTER-TAX DOLLARS

Before-tax dollars are funds that are not subject to income tax at the time they are earned (before-tax payroll deductions reduce your taxable income). They become taxable when you retire, terminate County service, or when your beneficiary receives them upon your death. Payroll deductions and rollovers from your County 457 plan and/or other tax qualified plans are examples of before-tax dollars.

After-tax dollars are funds — such as proceeds from mortgage refinancing or savings accounts — that were subject to income tax at the time they were earned. Since they have already been taxed, they are not subject to income tax at retirement, termination,

If you use after-tax dollars for a lump-sum payment, a portion of your retirement allowance will be considered non-taxable income. This status will continue until the amount equal to the amount of your lump-sum payment has been paid to you.

CONTRACTS PAID WITH ANY TYPE OF BEFORE-TAX DOLLARS ARE IRREVOCABLE

The ability to change or revoke your contract depends on the type

  • Once you sign a contract that includes before-tax payroll deductions and/or payments using any other before-tax funds, the contract is irrevocable.
  • Only contracts based on payments made exclusively with after-tax dollars may be revised or revoked.

If you revoke your after-tax dollar contract before it is paid in full, LACERA will prorate the amount you have paid and credit your account for years/months of service credit accordingly. This does not apply if you are redepositing withdrawn contributions. If you do not complete the redeposit of your withdrawn contributions, your prior County service will not be restored.

In either case, LACERA cannot refund the money you already paid until you retire or terminate County service; if you die, the money will be paid to your beneficiary.

HOW INTEREST IS CALCULATED

The formulas used to calculate interest on Payment Contracts vary according to the type of service you are purchasing, the date you entered membership, and your current and prior retirement plan. (For formula details, visit the Benefits section of lacera.com.)

On purchases of previous County service, the cost includes the interest your contributions would have earned had they been on deposit with LACERA from the date you became a member (or from the date you withdrew your funds) to the expiration date on your Payment Contract.

The cost to purchase other types of service credit is based on the present value of the retirement benefits you will receive (and not on back interest). Your current age and salary are factors that most affect the purchase cost.

If you choose payroll deductions, your monthly deduction will be calculated using a projected semi-annual interest crediting rate, set by the Board of Investments, for the term of the contract. At the end of your contract, LACERA will reconcile your balance and adjust your deductions to prevent any over or underpayment.

According to the law, interest is credited (at a rate set by the Board of Investments) to member contributions on deposit in the retirement fund. Interest crediting is applied twice a year (semi-annually) on June 30 and December 31 to all member contributions that have been in the retirement fund for at least six months immediately prior to the date of credit.

Consult with a professional advisor regarding tax and legal matters pertaining to your individual situation; LACERA does not offer tax or legal advice.

2/10/14