Purchasing Service Credit

Service credit may be purchased by members in one of LACERA’s contributory plans (Plan A, B, C, D, or G) for certain types of County service and non-County government service performed prior to LACERA. If you are a former Plan E member currently in Plan D, your ability to purchase service credit is subject to certain conditions.

Purchasing Process

• 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.

Payment Options

• 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
• 403(b)
• After-tax lump sum payment

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.

If any part of your contract is paid with before-tax dollars, such as payroll deductions or rollovers, the contract is irrevocable. Once signed, it cannot be changed or canceled.

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.

Contracts paid entirely with after-tax dollars may be revised only to change the payment term. You can shorten or extend the schedule, but you cannot revoke the contract or request a refund.

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.

Retiring with an Unpaid Balance

If you retire with an unpaid balance on a service purchase contract, you have 120 days to pay the balance in full. If you do not, your account will be credited with prorated service credit based on the amount you paid.

This proration does not apply to redeposit contracts or Open Window Plan Transfers. Those types of contracts must be paid in full to receive any credit.

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. LACERA cannot refund any payments you have made until you retire or terminate County service. If you die before then, the funds 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 member contributions actually made and the safety member contributions that would have been made—both employee and employer—plus the interest those contributions would have earned if they had 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.