Covered Employer Training Program

1. Covered EmployerTraining Program Module Four The Service Purchase Process

2. Purchasing Service • Members may choose to purchase additional service to meet retirement eligibility sooner or to increase their monthly benefit. • The option to purchase service is only available to active contributing members. Follow along in your Covered Employer Procedures Manual! Page 47

3. Purchasing Service (continued) • Please contact your insurance provider to see if purchasing service affects your insurance eligibility. • Members cannot purchase service to meet the age requirement for retirement eligibility. • For example, a member who is age 57 and has more than five years of earned service cannot purchase three years of service to meet retirement eligibility age (60 years). Page 47

4. Service Purchase TypesQualified Service • Educational service, public service, and military service may be purchased at a cost of 16 percent of a member's career highest earnable compensation for each year of service being purchased. Service credit may only be purchased for periods of paid service for which you do not already have credit. • Educational service is classified as any period of paid classroom teaching consisting of grades k-12 in a public or private school. • Military service is classified as service performed in the United States Army, Navy, Marine Corps, Air Force, Coast Guard, Select Reserves, and Army National Guard or Air National Guard. A maximum of six years of military service may be purchased. Pages 47-51

5. Service Purchase TypesPreviously Withdrawn Service A member who previously terminated covered employment and took a refund of his account balance, has the option of repaying the withdrawn account balance plus interest to the date the request is received to reinstate his previous service credit. Page 50

6. Service Purchase TypesNon-Qualified Service Members with five years of earned service also have the option of purchasing a maximum of five years of “non-qualified” service. The cost is 35 percent of their career highest annual earnable compensation for each year being purchased. Page 50

7. Service Purchase Types A complete list of service purchase types can be found in the Service Purchase Forms and Cost by Type in your appendix. Previously withdrawn service and State Optional Retirement Program (State ORP) service, military leaves of absence, as well as periods of workers’ compensation are considered earned service and applied to the earned service requirement for retirement eligibility once the purchase is complete. Earnings associated with previously withdrawn service and State ORP service, military leaves of absence, as well as periods of worker’s compensation may be included when determining the member’s average final compensation (AFC) at retirement or when the member purchases service.

8. How Service Credit for Purchased Service Is Determined • Indexed Service Credit Threshold (see chart) • Used to determine service credit for public, educational, and State ORP service • May be applied to periods of previously purchased part-time credit or previously earned part-time credit Page 47

9. How to Obtain a Service Purchase Invoice • Send the required forms, completed by the appropriate parties, to the Retirement Systems (see forms list in appendix). • The member has 90 days to submit all required information. If the required information is not received within that time frame, the request expires. Any subsequent request would then require a new salary verification, as well as any other information not previously received. Page 51

10. How to Obtain a Service Purchase Invoice (continued) • After an invoice is created and mailed to the member, the service verification remains on file for use should the member decide to purchase the service at a later date. • Once a payment invoice expires, a new salary verification form is required for any subsequent requests for a service purchase cost. Page 51

11. Retirement Eligibility Requirements A member must have at least five years of earned service to consider retirement. South Carolina Retirement System (SCRS) : • Normal retirement (unreduced benefits) eligibility • Age 65; or • 28 years of service credit • Early retirement (reduced benefits) eligibility • Five years of earned service credit and age 60; or • Age 55 or older with 25 years or more of service credit Police Officers Retirement System (PORS): • 25 years of service credit regardless of age, OR • Age 55 or older Pages 59-62

12. Purchasing Service to Meet Retirement Eligibility • If a member needs to purchase a certain amount of service to be eligible to retire by a certain date, write the following in the “comments” line of the Request for Service Purchase Cost (Form 2101): Member wants to purchase enough service to have ____ years of service as of __/__/__ date of retirement. • Also indicate in the comments section if the member will be using any unused sick leave to reach 28 years of service (applicable for SCRS members retiring under 55/25 eligibility criteria). Page 52

13. Obtaining Verification of Previous Service • If a member is unable to verify public or educational service because records are no longer available, other types of verification can be used such as: • Verification from Social Security (see appendix, SSA Form 7050) • W-2 forms • Affidavits are not acceptable

14. Obtaining Verification of Previous Service • To verify military service use Verification of Military Service (Form 180). The directions on the back of the Request for Service Purchase Cost (Form 2101) list the specific documents needed for active military/National Guard/Select Reserves: Military Service - Any period of military service up to six years, including National Guard and Select Reserve. Discharge from service must be under conditions other than dishonorable. Include a legible copy of your DD214(s) for active military, NGB22(s) and/or NGB23(s) reflecting type of discharge and a summary statement reflecting credits/points and anniversary dates for National Guard, or a Summary of Retirement or Career Retirement Credit Report reflecting credit/points, anniversary dates and type of discharge for Select Reserves.

15. Obtaining Verification of Previous Service • For information and instructions on obtaining verification of federal service, see Service Purchase Federal Address List (Form 2391).

16. The Service Purchase Invoice • The cost on the invoice is generally valid for six months. • An expiration date is provided on the invoice. • Payment will be accepted on or before the expiration date provided the member is actively employed. • The member must complete the bottom of the invoice and return it to the Retirement Systems if he wants an installment service purchase payment estimate. Page 51

17. Acceptable Methods of Payment • Lump sum payment • Deferred: rollover(s) from South Carolina Deferred Compensation Program, or other qualified retirement plans. • Non-Deferred: personal check or money order. • Installment Service Purchase Program (deferred or non-deferred) • See the Service Purchase Payment Options Sheet (Form 2390) in the appendix (also available on our website). This sheet is enclosed in the same envelope as the invoice. Page 52

18. Installment Service Purchase Program • A member can purchase service for which they have an invoice by making payments through payroll deduction. • Members have the choice of having payments withheld on a deferred (before tax) or non-deferred (after tax) basis. • The interest rate for installment service purchases created during FY11 is 5.25 percent. See Installment Service Purchase Monthly Paymentschart in your appendix for examples of monthly payments. Page 53

19. Tax-Deferred Installment Payments(Before Taxes) • Can pay off balance only by terminating employment or at retirement. • Additional principle payments are not allowed. • Pre-tax agreements are irrevocable; therefore, payments cannot be increased or decreased by the member unless he retires, terminates, or provides evidence of an unforeseen hardship defined under Internal Revenue Code section 457. • If a hardship occurs, the member must detail the hardship circumstances and submit it in writing to the Retirement Systems for review.

20. Non-Deferred Installment Payments(After Taxes) • Less restrictive than deferred plan. • Additional payments are accepted throughout the course of the loan. • Member can pay off loan at any time.

21. Reporting the Installment Payments • Employers on the state Comptroller General’s (CG) office payroll system: • The Retirement Systems’ Service Accounting Department submits an authorization to the CG’s office to initiate and terminate the payroll deduction. Page 54

22. Reporting the Installment Payments • Employers not on the CG’s office payroll system are responsible for withholding the payroll deduction. • Installment payments are not included with your monthly or quarterly contribution procedures. You must submit installment purchase payments separately. • Send a check for all installment payments no later than five days following each pay day in a brown envelope with a completed Installment Service Purchase Remittance (Form 3229). Page 54

23. When the Installment Purchase Nears Maturity • The Retirement Systems mails notification of the final installment payment due date to the employer. • If an employer deducts a payment from a member’s paycheck after an installment purchase has been paid: • The Retirement Systems will refund the member directly for non-deferred installments. • For deferred installments, the refund is paid to the employer. Page 56

24. Summary Quiz • How often do you remit service purchase payments to the Retirement Systems? • Can a member purchase service to meet retirement eligibility?

25. Disclaimer THE LANGUAGE USED IN THIS PRESENTATION DOES NOT CREATE ANY CONTRACTUAL RIGHTS OR ENTITLEMENTS AND DOES NOT CREATE A CONTRACT BETWEEN THE MEMBER AND THE SOUTH CAROLINA RETIREMENT SYSTEMS. THE SOUTH CAROLINA RETIREMENT SYSTEMS RESERVES THE RIGHT TO REVISE THE CONTENT OF THIS PRESENTATION. This presentation is meant to serve as a guide but does not constitute a binding representation of the South Carolina Retirement Systems. The statutes governing the South Carolina Retirement Systems are found in Title 9 of the South Carolina Code of Laws, and should there be any conflict between this presentation and the statutes or Retirement Systems’ policies, the statutes and policies will prevail. Employers covered by the South Carolina Retirement Systems are not agents of the Retirement Systems.

26. Questions