Covered Employer Training Program

1. Covered EmployerTraining Program Module Four The Service Purchase Process

2. Purchasing Service • Active, contributing members may choose to purchase additional service to meet retirement eligibility sooner or to increase their monthly benefit. • Actuarially neutral cost based on member’s age, credited service, current or career highest fiscal year salary, AFC, and amount of service being purchased. • Cost would not be less than 35 percent per year for nonqualified service. • Cost would not be less than 16 percent per year for qualified service types. • The actuarial cost would not apply to re-establishment of withdrawn service, transfers, workers’ compensation, or military leave of absence. 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).

4. Service Purchase TypesQualified Service • Educational service, public service, State Optional Retirement Program ( State ORP), military service, and an employer approved leave of absence may be purchased at a cost determined by the South Carolina Public Employee Authority’s (PEBA) independent actuary and will not be less than 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.

5. Service Purchase TypesQualified Service • Public service is paid service as an employee of the government of the United States, a state, or a political subdivision of the United States. You may not purchase service for a period of public service for which you may receive a retirement benefit from another defined benefit retirement plan.  • State ORP service is paid service during which time the member participated in the State Optional Retirement Program administered by PEBA. State ORP participants may purchase service credit for all or a portion of his State ORP service. You may not purchase service for a period of State ORP service for which you may receive a retirement benefit from another defined benefit retirement plan. 

6. Service Purchase TypesQualified and Previously Withdrawn Service 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. Discharge from service must be under conditions other than dishonorable. A member called to active duty may arrange in advance with their employer to continue contributing to their account while on military leave. A member on an employer approved leave of absence may purchase up to two years of service for each leave of absence, provided they do not already have service credit. The member must have returned to covered employment within four years. 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. A reinstated withdrawal can effect whether a member is enrolled in SCRS/PORS Class Two vs. Class Three.

7. Service Purchase TypesWorkers’ Compensation Any period(s) of leave without pay due to an on-the-job injury during which workers’ compensation benefits were received. Cost is based on contributions plus interest based on earnable compensation at the time of injury. 

8. Service Purchase TypesTransfer from SCRS to PORS An active member of PORS may pay to transfer periods of non-concurrent SCRS service to their PORS account. Cost to transfer from SCRS to PORS is based on 5 percent of current earnable compensation for each year of non-concurrent service being transferred.

9. Service Purchase TypesNon-Qualified Service Members (Class Two and Class Three) with five years of earned service also have the option of purchasing a maximum of five years of “non-qualified” service. The cost which is determined by PEBA’s independent actuary, will not be less than 35 percent of their career highest annual earnable compensation for each year being purchased.

10. 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 earned service and 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 (SCRS only), 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.

11. Determining Service Credit for Purchased Service • 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

12. How to Obtain a Service Purchase Invoice • Send the required forms, completed by the appropriate parties, to PEBA (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.

13. 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.

14. Class Two Retirement Eligibility Requirements South Carolina Retirement System* (SCRS) : • Normal retirement (unreduced benefits) eligibility • Age 65; or • 28 years of service credit • Early retirement (reduced benefits) eligibility • 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 *Class Two members must have at least five years of earned service.

15. Class Three Retirement Eligibility Requirements* South Carolina Retirement System (SCRS): • Rule of 90. Age and years of service must add up to 90. • A member who is 56 years old and has at least 34 years of service, would be eligible for normal retirement (56 + 34 = 90). • Age 60 or older on the date of retirement. (5 percent reduction for each year member retires before age 65). Police Officers Retirement System (PORS): • 27 years of service credit regardless of age, OR • Age 55 or older. *Class Three members must have at least eight years of earned service.

16. 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).

17. Obtaining Verification of Previous Service • If a member is unable to verify public or educational, or State ORP 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

18. 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.

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

20. 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 PEBA if he wants an installment service purchase payment estimate.

21. 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). This sheet is enclosed in the same envelope as the invoice.

22. 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 FY12 is 5.25 percent. See Installment Service Purchase Monthly Paymentschart in your appendix for examples of monthly payments.

23. Tax-Deferred Installment Payments(Before Taxes) • Can pay off balance only by terminating employment or at retirement. • Additional principal payments are not allowed. • Pre-tax agreements are irrevocable; therefore, payments cannot be 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 PEBA for review.

24. 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.

25. Reporting the Installment Payments • Employers on the state Comptroller General’s (CG) office payroll system: • PEBA’s Service Accounting Department submits an authorization to the CG’s office to initiate and terminate the payroll deduction.

26. 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. • Employers must have on file a completed resolution (Form 3228) with PEBA, which provides additional details on procedures and restrictions. • 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).

27. When the Installment Purchase Nears Maturity • PEBA 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: • PEBA will refund the member directly for non-deferred installments. • For deferred installments, the refund is paid to the employer.

28. Summary Quiz • How often do you remit service purchase payments to PEBA? • Can a member purchase service to meet retirement eligibility?

29. 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 PUBLIC EMPLOYEE BENEFIT AUTHORITY. THE SOUTH CAROLINA PUBLIC EMPLOYEE BENEFIT AUTHORITY 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 Public Employee Benefit Authority. Title 9 of the South Carolina Code of Laws contains a complete description of the retirement benefits, their terms and conditions, and governs all retirement benefits offered by the state. State statutes are subject to change by the General Assembly. Employers covered by the South Carolina Public Employee Benefit Authority are not agents of the South Carolina Public Employee Benefit Authority.

30. Questions