You have different payment options and funds that you can use to purchase service credit.
If you are a former Plan E member currently in Plan D, your ability to purchase service credit is subject to certain conditions.
- Log in to My LACERA to start the Purchasing Service Credit application, or contact us to request a form.
- If you request to purchase service from an outside agency, LACERA reaches out directly to the agency to obtain verification of your service.
- LACERA reviews application and mails you a Cost Notification Letter and Service Credit Contract, which includes payment options.
- Review, select your payment options, sign, and return contract to LACERA.
- LACERA mails you a confirmation notice.
- Check the status of your service credit purchase and interactions by logging in to My LACERA.
- 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: allows 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.
Accepted Funds for Payments
Service credit may be purchased with:
- Payroll deductions (using before or after-tax dollars)
- Qualified 401(k), 401(a), or Keogh plans
- 457 fund plan transfers, in-service or after termination
- IRAs: Non-Roth/non-after tax
- After-tax lump sum payment
- After-tax payroll deductions
Before- or 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 receive them during retirement, withdraw them after you 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.
Contracts including before-tax payroll deductions and/or payments using any other before-tax funds are irrevocable.
After-tax dollars are funds subject to income tax at the time they were earned, such as proceeds from mortgage refinancing or savings accounts. Since they have already been taxed, they are not subject to income tax at the time of withdrawal.
Only contracts based on payments made exclusively with after-tax dollars may be revised or revoked.
If you paid any portion of your purchase using after-tax dollars, a portion of your retirement allowance will be considered nontaxable income. The nontaxable portion of your retirement allowance will continue until you have recovered all of your nontaxable funds.
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 the years/months of service credit accordingly. This does not apply if you are redepositing withdrawn contributions or are in an Open Window Transfer contract. If you do not complete the redeposit of your withdrawn contributions, your prior County service will not be restored. If you are a Plan E member and do not complete an Open Window Transfer contract, you will remain in Plan E. 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.
County Service Credit Purchases
The cost to purchase County service credit 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.
Here are a few more specific instances of how interest is calculated:
- For sick without pay (SWOP) period of absence purchases, the cost includes the interest your contributions would have earned had they been on deposit at the time you would have made the contribution.
- For general to safety member conversions, the cost includes the difference between the general and safety employee and employer contributions that were actually made and would have been made and interest those contributions would have earned had they been on deposit.
- For converting Plan E to D in an open window transfer, the cost includes the interest your Plan D contributions would have earned had they been on deposit at the time you would have made the contribution.
For specific calculation formula details, visit County Categories of Service Credit.
Non-County Service Credit Purchases
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, assumed retirement age, and salary are the factors that most affect the purchase cost.
If you choose payroll deductions, your monthly deduction will be calculated using the current semi-annual interest crediting rate, set by the Board of Investments, for the term of the contract.
For specific calculation formula details, visit Non-County Categories of Service Credit.