Purchasing Service
Maximizing Your IPERS Benefits |
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What Are the Costs and Benefits of a Service Purchase?
When you purchase service, you pay money into the IPERS Trust Fund to purchase additional service credits that will be used to calculate your retirement benefits. The added service credits can increase the amount of your benefits or allow you to retire earlier. Only you can decide if the added benefits you will receive from a service purchase outweigh the cost to purchase the service.
Service Purchase Costs
You must complete an Application for Service Purchase to find out the cost of purchasing service credit. IPERS’ actuary determines the cost of your service purchase. A service purchase must pay for the additional benefits you will receive over your lifetime. IPERS does not profit from a service purchase.
The mathematical details behind the calculations for a service purchase are complex. They reflect expectations about future mortality rates, salary increases, and employment patterns. While the actuary uses the same set of assumptions for all service purchase calculations, the impact of the factors varies by individual. You must complete an Application for Service Purchase so the actuary can develop a cost quote. Remember, filing an application does not obligate you in any way.
Generally, the sooner benefits begin, the more valuable they are. If the service that is purchased moves up your projected normal retirement date, the service purchase cost reflects more than just the increase in your benefit amount due to the additional service. It also reflects the fact that you will begin drawing benefits earlier.
Based on historical experience, most service purchases cost between 3 percent and 7 percent of your annual pay for each quarter purchased. However, because your individual situation is reflected in the calculations, costs can vary from this range. Two situations that might seem similar could have significantly different costs.
Service Purchase Benefits
A service purchase will change the value of your IPERS benefits. Your unique circumstances affect how a service purchase affects your benefits. You need to weigh carefully what you will pay to make the purchase with the benefits you gain.
Here are examples of how service purchases affect other IPERS members. Remember, no two situations are alike. The costs vary significantly from person to person, and even for the same person at different points in time.
| Example 1 |
| Joe, age 62, has worked 18 years for an IPERS-covered employer at a highest 3-year average salary of $45,000. If Joe makes a service purchase for 3 years he worked at a non-IPERS-covered employer, he can increase his monthly pension $346.50 each month, from $1,228.50 to $1,575. |
| Example 2 |
| Betsy is also 62 years old. She wants to retire after working 27 years for an IPERS-covered employer. With a highest 3-year average salary of $52,000, Betsy has accrued a monthly pension benefit of $2,340. However, early in Betsy’s career, she took a refund of her IPERS money when she moved out of state for a short time. If Betsy completed a service purchase of her refunded time, she could increase her monthly pension payment to $2,600 (that’s an increase of $260 a month). |
| Example 3 |
| Sara is 49 years old. She has not thought about retirement seriously, although she knows she should plan to make sure she will have enough retirement income. Sara has worked 24.25 years for a public employer that takes part in IPERS. If Sara buys 2 years, her monthly benefit payment at age 56 will be $2,590.35 instead of $2,420.65. The purchase will cost her nearly $17,000. However, the increase is $169.70 a month, or $2,036.40 a year—for life. |
Before deciding whether purchasing service is an advantageous move, Joe, Betsy, and Sara need to consider how long they are likely to draw benefits after retirement. They need to look at their benefit levels with and without the service purchase. They must also consider how the service purchase will affect their beneficiary(ies) and alternative uses for the money they use to purchase service.
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