Service Purchase Fact Sheet - KP&F

You may be able to increase your retirement benefit and possibly retire earlier by purchasing service credit. If you are eligible, you can purchase service credit by making additional contributions to the Retirement System.

Types of Service Credit You Can Purchase

• Forfeited KP&F service. All available forfeited service must be purchased together.
• Military service. You can purchase year for year of active military service and one quarter of service credit for each year of military reserve service. Up to five years of military service credit may be granted at no cost to you if your service is surrounded by covered employment (military service interrupted your public employment and was immediately followed by reemployment). You can purchase service credit for military service that is not granted. Purchased and granted military service is limited to six years, with certain exceptions permitted by federal law. Military service does not count towards your eligibility to retire, but does increase your benefit.
• Forfeited KPERS service. Previous KPERS service must be purchased in a lump sum and is added to your KPERS record.

Check with your designated agent to see if your past public service qualifies. He or she also will be able to help you start the purchase process.

Now Is the Time to Buy

Don’t wait. Purchase costs are based on salary and age. Now is probably the most inexpensive time for you to buy. Also, you can only purchase credit while an active member.

Payment Options

• Pre-tax payroll deduction over a period of time
• Rollover or trustee-to-trustee transfer from another retirement plan like a governmental 457(b) plan such as the Kansas Public Employees Deferred Compensation Plan, a 403(b) annuity, or an individual retirement account
• Lump sum (personal check, money order or Discover Card)

Cost

If you are under age 37, a year of service generally costs about 7 percent of your annual salary (or final average salary, whichever is higher). See example below. Each year after age 37, the actuarial cost increases significantly.

Using the above examples, a member retiring with full benefits would recover the original purchase price
after 34 months. Any money after that would be value added to the lifetime benefit.

How Does the Process Work?

1. Contact your designated agent to see if your past service is eligible.
2. If your service is eligible, complete an Application to Purchase Service Credit (KPERS-67) form.
3. Your designated agent completes the employer part of the form and sends it to the Retirement System.
4. The Retirement System calculates your purchase cost and sends a letter to you through your designated agent. At this point, you can consider the cost and benefits.
5. To complete the purchase, sign the paperwork, arrange for payment and return both to the Retirement System.
6. The Retirement System receives your payment or payroll deduction commitment.
7. The Retirement System adds service credit to your record after the purchase is completed.

Federal Tax Requirements on Service Purchases

Only active members may purchase service. Federal law may limit you if you are purchasing service with after-tax money. This limit applies only to after-tax contributions, not to regular Retirement System contributions or tax-free rollovers.

• Not on purchases with rollovers or payroll deduction
• Annual limit amount is indexed and changes each year
• Can cause a delay in completing a lump-sum after-tax purchase
• Most likely to affect high-cost purchases (large number of years or member’s age and salary)