What’s PERS retirement?

One of the retirement plans that federal and state institutions offer employees is the Public Employees Retirement System (PERS). PERS is a pension plan provided to public employees working in federal, state, or city entities. It is funded by contributions from both the employee and the employer.  

A PERS retirement plan is a defined benefit pension plan that guarantees public employees a monthly income over their lifetime. Employees are eligible to join a PERS plan immediately after hire, and they will be eligible to receive retirement benefits after age 65 if they worked for at least five years. The amount of retirement benefits depends on your average compensation and years of service.

How much can you contribute to PERS retirement?

Once you are hired as a full-time employee, you may be eligible to join and contribute to the employer’s PERS retirement plan. Generally, PERS retirement is funded by contributions from both the employee and the employer.

Employees contribute a percentage of their eligible compensation through payroll deduction. The percentage contribution varies across different employers. These contributions are taken on a pre-tax basis, which reduces the amount of taxes you will owe the IRS. Employee contributions are mandatory.

The employer is also required to contribute to the PERS plan on your behalf. For state institutions, the amount that employers are required to contribute is set by the state legislature. The employer contributions are not matching contributions, and employees do not get access to these funds.

How retirement benefits are determined

Once you retire, you can expect to receive lifetime benefits from the PERS plan. The retirement benefits are determined based on the following two factors:

Service credit

Service credit refers to the period you have worked in a public institution, and it considers the number of hours worked each month and the duration you have participated in the PERS retirement. The service credit is reported by the employer.

Generally, when you put in at least 90 hours in a month, you get one service credit for the month. If you work for less than 90 hours but more than 70 hours in a month, you get one-half of the service credit.

If you earn a salary from two or more employers, you cannot receive more than one service credit in a month.  

Average compensation

PERS retirement also considers the average final compensation (PDF) of the 60 consecutive highest months of your career. In most cases, the highest-earning months could be your final five years before retirement. However, some employees could have earned higher salaries at the beginning or middle of their careers. 

For example, if you worked in a state institution for 30 years, and the average final compensation for the highest-earning 60 months was $6,000, the monthly retirement benefit can be calculated as follows:

=2% x $6000 x 30

Hence, the monthly retirement benefit will be $3,600.

When can you retire?

If you have enrolled in your employer’s PERS plan, you will need at least 5 years of service to qualify for retirement benefits. Here are the main retirement options:

Full retirement

If you want to get your full retirement benefits from your PERS plan, you must wait until you are 65 to start taking distributions. At this age, you are fully vested and you can start making withdrawals from the plan. However, the only exemption is when you have accumulated 30 years or more years of service; you can retire at 62 and still get the full benefit.

Early retirement

If you are not yet 65, you have the option to retire early and receive retirement benefits. However, you will receive reduced benefits compared to when you would have waited until you are 65. The monthly benefits will be reduced since the pension payments will be spread out over a longer period. The reduction will depend on the service credits you have, your age, and the date when you retire.

Some PERS retirement plans require that an employee must be at least 55 years, and must have worked for the employer for at least 20 years to qualify for early retirement.

What happens if you leave your job before retirement?

If you decide to quit your job or switch to another job, you have the following two options with your retirement savings:

Do nothing

Once you leave your job, you can decide to leave the retirement money with your former employer. The money will continue to accrue interest until when you withdraw or transfer the money to another retirement plan. Your service credits will remain intact, and you can add more service hours if you decide to re-enter the workforce.

Withdraw

You can also decide to withdraw the funds from the PERS plan plus all the accumulated interest. However, since a PERS is funded with pre-tax money, you will owe income taxes on the amount you withdraw.

Rollover to an IRA

If you want to avoid paying taxes on the withdrawal, you can rollover the PER savings to an IRA or other qualified retirement plan. You won’t pay tax or penalties on the rollover. An IRA gives you greater flexibility with your retirement savings, and you have a wide pool of investment options to choose from.