Payment Options

An Actuarial Equivalent Reduction (AER) is an alternative payment method for paying your service credit purchase balance at retirement. An AER enables you to receive the immediate increase to your monthly retirement benefit, while also satisfying the remaining balance owed. AER is only available as a payment option at the time of retirement, or to State employees when converting their past Second Tier service.

If you have an unpaid balance for a service credit purchase, you can use that AER Estimator to see how it will reduce what you're paid monthly when you retire. The estimator is available in myCalPERS under the Purchases tab.

You may be eligible to pay for your service credit purchase with installment payments for up to 180 monthly payroll periods (or the equivalent based on your pay frequency). You may be eligible to make payments on an after-tax or pre-tax basis. Review the Tax Payments or Tax Deferred Payments sections below.

Your maximum payment length will be based on your current pay type and the amount owed:

The minimum payment is $15 per month or the equivalent if paid other than monthly. The payment schedule includes interest through the completion of payments. When electing the installment payment option, you'll be provided with the interest amount and total interest that you'll pay during the duration of the payment schedule. 

Refer to the Installment Payment Guidelines (PDF) for more information about this payment option.

Partial Payments

You may make a partial payment and then pay the remaining balance through installment payments. Your partial payment may be submitted following the same instructions under Lump Sum Payments.

CalPERS will accept a rollover or transfer from a qualified fund as a partial payment or lump sum such as:

• 401(k), 401(a), or IRA plans
• 403(a) or 403(b) plans
• Governmental 457 plans
• Conduit IRAs that originated from qualified 403(a), 403(b), or governmental 457 plans and have not been commingled with any other funds
• Traditional Contributory IRAs, including SEP IRAs and Keogh IRAs (Roth IRAs don't qualify)

After-Tax Payments

You are eligible to make after-tax installment payments through payroll deductions if you are an active member with payroll being reported to CalPERS. The installment payment deductions are taken after taxes are applied to your earnings, so the deduction amount has been taxed. You have the flexibility to pay additional payments or pay off the balance at any time.

Pre-Tax Payments (Tax Deferred)

When making installment payments for your service credit purchase, you may be eligible to make pre-tax installment payments through payroll deductions. This plan allows you to defer the income tax liability of your payments through payroll deductions. Per Federal Internal Revenue Code (IRC) Title 26, subsection 414 (h) (2) d, if you elect to make tax deferred installment payments, you do not have the ability to make additional payments or pay off the balance early.

The pre-tax installment payment option is available to all state employees. If you work for a school or public agency, ask your employer if the option is available to you. Part-time California National Guard members aren't eligible.

How It Works

You'll be required to electronically sign an irrevocable election with CalPERS. We then notify your employer to begin taking payroll deductions.

If you leave CalPERS-covered employment, your payment option is to pay the remaining balance in full.

If you retire and your election was received prior to 01/01/2020, your payment options are to pay the remaining balance in full, continue payments through benefit roll deductions (BRD), or Actuarial Equivalent Reduction (AER) for any outstanding balance at retirement. You may also choose to make a partial payment and the remaining balance owed will be converted to BRD or AER.

If you retire and your election was received on or after 01/01/2020, your payment options will be to pay the remaining balance in full, or Actuarial Equivalent Reduction (AER) for any outstanding balance at retirement. You may also choose to make a partial payment and the remaining balance owed will be converted to an AER.

You can make one payment to CalPERS to cover the cost of your service credit purchase. You can't submit more than the lump sum amount provided. When your election and lump sum payment are received, we'll send you an acknowledgement letter.

If you are already set up on a after-tax payment schedule and would like to submit a lump sum payment to pay off your remaining service credit purchase balance, you must first request payoff documents. Log in to your myCalPERS account, where you can easily view your service credit purchase balance, as well as request your payoff amount.

Lump sum payments can be made through myCalPERS, using either a:

• credit card
• debit card
• bank account(s)

CalPERS also accepts plan-to-plan transfers or rollovers from a tax qualified eligible retirement plan as a payment. If you're considering this option, be sure to review the specific rules for using this payment method.

Plan-to-plan transfers and rollovers allow you to continue deferring income taxes on your retirement savings. You can transfer pre-tax funds from an eligible retirement plan to another, generally without taxes or penalties.

Eligible plans as defined by Internal Revenue Code (Code) section 402(c)(8)(B) include:

• 401(a) and 401(k) plans
• 403(a) and 403(b) plans
• Governmental 457 plans
• Conduit IRAs that originated from a qualified 401(a), 401(k), 403(a), 403(b), or governmental 457 plan and haven't been commingled with any other funds
• Traditional/Contributory IRAs, including SEP IRAs and Keogh IRAs (Roth IRAs don't qualify)

Plan-to-plan Transfer

Is an in-service transfer of funds from one eligible retirement plan directly to another at your request prior to separation from the employer where the plan is maintained. There's no distribution upon transfer, nor taxes triggered.

Rollover

Is a transfer of money after a distribution event occurs (i.e., death, disability, retirement, or separation). Rollovers can be either direct or indirect.

• A direct rollover is like a plan-to-plan transfer to the extent that funds are transferred directly from one eligible retirement plan to another.
• An indirect rollover occurs after you have received an actual distribution of the funds. You have 60 days from date of receipt of the funds to roll them over to an eligible retirement plan. If you don't rollover the funds to an eligible retirement plan within the 60-day period, the distribution is included in your gross income at the time the distribution was made.

Plan-to-plan transfers and rollovers from eligible retirement plans may be used as payment on the amount due CalPERS for a service credit conversion or purchase.

Funds received as a beneficiary of a deceased spouse may be accepted if accompanied by certification of entitlement to those funds in addition to the plan certification requested below. Contact us for additional entitlement certification information if this is your situation.

We can accept a California Department of Human Resources (CalHR) Savings Plus Program (SPP) transfer. View their Purchase of Service Credit (PDF) form or call 855-616-4776.

We don't initiate the transfer of funds or complete documents to draw your funds. You're responsible for obtaining certification from your plan administrator that your plan is an eligible retirement plan. Contact the plan prior to starting the transfer or rollover process to confirm the fund type, and, if eligible, obtain their distribution request document.

Processing Your Rollover

If you didn't receive service credit cost or payoff information, contact us. Once you have confirmed your funds will be from an eligible retirement plan, you need to:

• Complete any transfer/rollover distribution form required by your plan. We can't make this request.
• Complete the Rollover Certification Form (PDF) for each plan you wish to transfer or rollover. Refer to the Rollover Certification Process Flowchart (PDF) for additional instructions.

Upon receipt of the check and Certification Form, make a copy of all forms for your records. Then, mail the check to CalPERS and upload the completed Certification Form to your myCalPERS account.

We can't accept funds without proper documentation. If a check is received without the completed Certification Form or comparable certification, the check will be returned to you as incomplete and you will need to submit a completed package prior to the expiration date.

Active and inactive members may cancel an after-tax installment payment plan -at any time prior to retirement. A cancellation is effective the first of the month after it's approved. The service credit purchased by your original election will be reduced in proportion to the balance of the total amount remaining unpaid, including interest, while the original election will remain in effect for payments already made.

Cancellations are not available for the following reasons or purchase types:

• A service credit purchase subject to a community property division by way of court judgment, domestic relations, or other court order or settlement agreement
• A tier conversion election
• Contributions or mandatory service credit adjustments required by law or agreement
• Pre-Tax service credit purchase payment plans (refer to Internal Revenue Code 414 (h) (2))
• Retirees

If you retire on disability or industrial disability, and your service credit purchase does not increase your monthly allowance payable as determined by our Retirement Benefit Services Division, you may request cancellation of your monthly installment payments on a prospective basis. Should you be granted a cancellation of your service credit purchase installment payments and you later reinstate to active CalPERS-covered employment, you will be required to resume the previously cancelled payments, including additional interest through the completion of those payments.

At the time of election, you'll be provided with the minimum payment amount, as well as the total interest you'll pay if you choose the installment payment option. You can make larger payments, but you can't decrease the minimum payment amount.

If you are already set up on an after-tax payment schedule and would like to submit a lump sum or partial payment towards your remaining service credit purchase balance, you must first request payoff documents. Log in to your myCalPERS account, where you can easily view your service credit purchase balance, as well as request your payoff amount.

Suspension requests may be approved for a 12-month period of time.

If you are an active or inactive member, you may be eligible for a temporary suspension if you selected after-tax installment payments for service credit purchase(s) and have not suspended your payments within the last three years.

When you're granted a temporary suspension:

• Interest will continue to accrue on the unpaid balance during the suspension period.
• The account balance will be recalculated to include the additional interest at the end of the suspension period.
• The recalculated payment plan will take into consideration payments made to date and will not exceed the maximum payment plan allowed by law.
• Your payments will automatically resume at the end of the suspension period.

Suspensions are not available for the following:

• A service credit purchase subject to a community property division by way of court judgment, domestic relations, or other court order or settlement agreement
• Contributions or mandatory service credit adjustments required by law or agreement
• Pre-Tax service credit purchase payment plans - Internal Revenue Code 414 (h) (2)
• Retirees
• Tier conversion