Bill Allows Purchase of Service Credit

Gov. Davis has signed into law AB 719 -- which will cost the state nothing and allow eligible state workers to purchase from one to five years of nonqualified service credit in the Public Employees' Retirement System (PERS), thereby increasing their retirement benefits at no cost to the state.

Authored by Assemblymember Gloria Negrete McLeod, D-Chino, AB 719 says eligible members of PERS, such as state, school and local government workers, would need at least five years of service credit prior to the purchase, which could be made over a period of 15 years. The member must begin the purchase prior to retirement, but may make the payments after retirement by a reduction in retirement income.

The bill is not expected to affect the state fiscally because the member is required to pay the full present-value cost of the benefit -- both the employee and employer contributions.

Many members take breaks in employment to raise children, advance their educations or work in the private sector for a time, according to Clem Meredith, a consultant for the Assembly Public Employees, Retirement and Social Security Committee. For members who do not enter PERS covered employment until later in life or who have breaks in service, purchasing nonqualified time can be an important factor in their retirement planning.

Recent changes in federal tax laws allow people to roll over funds from some personal tax-qualified savings accounts, such as 401(k)s, to purchase service credit in defined benefit plans, making the purchase of nonqualified time easier for those who have accumulated personal savings.

The cost for buying the service credit depends on a worker's age, years of service and salary. By visiting the PERS Web site at www.calpers.ca.gov members can calculate approximately how much it would cost them to buy up to four years of military credits, which are similar to the unqualified service credits. A PERS spokeswoman said the Web page will soon be changed to calculate up to five years of credit under the bill's provisions. Members of PERS may also call a new toll-free customer service number, (888) CalPERS (225-7377).

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