Purchase of Service Credit (“PSC”)

“Service credit” represents the amount of time you have earned while working for and contributing to SDCERS, and time purchased or repurchased under the City of San Diego (“City”), San Diego Unified Port District (“Port”), and San Diego County Regional Airport Authority (“Airport”) plans. For each year of full-time employment that you contribute to SDCERS, you will receive one year of service credit. Credits for part-time status are earned proportionately. For example, if you worked 20 hours a week for a year, you would earn 6 months of service credit.
 
Service credit is a factor used in calculating your pension benefit – generally, the more service credit you have accrued as of your retirement or DROP entry date, the greater your monthly pension benefit will be. (Note: If you receive a disability retirement benefit, any purchased service credit may not increase your retirement benefit.) Purchases of service credit (“PSCs”) are available to Members while they are employed by the City, Port, or Airport for specific periods of time during which they were employed by an SDCERS plan sponsor, but were not contributing to SDCERS or earning service credit.*
 
*This does not apply to Port General Members hired or rehired on or after January 1, 2009, who do not become Members of SDCERS until they have completed five consecutive years of Port employment after each hire or rehire date.
 
Except as provided under the “Termination of Installment Contract” section, all PSCs must be completed before you terminate employment, retire, or enter DROP. Note: Members participating in DROP, deferred or inactive Members, and retirees are generally not eligible to purchase service credit, except as provided in the “Termination of Installment Contract” section.
 
City Members who were hired before July 2, 2005 may also purchase up to five years of additional service credit (“Air Time”), unrelated to actual years worked, which would apply toward their vesting requirements and service retirement benefit. Port and Airport Members are no longer able to purchase Air Time as of January 1, 2013.

The Process of Purchasing Service Credit

A Member who is considering purchasing service credit must first submit a “PSC request” to SDCERS. This request may be submitted through SDCERS’ online Member Portal by clicking “Service Purchase Calculator.”
 
After receiving your PSC request, SDCERS will calculate PSC costs for each period of time available for you to purchase and mail the proposed contracts to your home address.  However, there is no obligation to complete any PSC contracts once you have received them.
 
Once SDCERS has provided you proposed PSC contract(s), you have 60 days to sign and return the contract, and then 60 days after signing the contract to either remit payment in full or begin the agreed-upon installment payments. Otherwise, the contract will be cancelled and the price quote will no longer apply. If you still want to purchase service credit after the contract has been cancelled, you must submit a new request. New contracts will be prepared and the price may increase. Service credit will be granted when your purchase is complete and paid in full.

Types of Purchases of Service Credit for City Members

City Members generally may not purchase service credit for approved leaves of absence until they have returned to active City employment, unless they are participating in a long-term disability program sponsored by the City.
 
Long Term Disability (“LTD”)
City Members may purchase service credit for a period during which they were on an unpaid leave of absence and receiving LTD benefits under a program sponsored by the City, as long as they left their contributions on deposit with SDCERS during the LTD period.
 
Family Medical Leave Act (“FMLA”)
A City Member may purchase service credit for a period during which they were on an approved unpaid leave of absence under the FMLA from the City, such as maternity leave and extended medical leave. 
 
Military Leave
City Members may purchase service credit for any period during which they were on approved unpaid military leave from the City. The Uniformed Services Employment and Reemployment Rights Act (USERRA) provides guidance for the purchase of military time covered by USERRA. See the Department of Labor website for more information.
 
Leaves of Absence Without Pay With Job to Be Saved
City Members may purchase time during which they were on a leave of absence without pay approved by the Civil Service Commission with job to be saved.
 
Other Unpaid Approved Leave of Absence
A City Member may purchase service credit for any unpaid approved leave of absence from the City that began before January 2, 1997.
 
Probationary Time
City Members may purchase time for any period of eligible City service during his or her probationary period of employment.
 
Previous City Service
A City Member who previously worked for the City in a position that was eligible for membership, but the Member was not a member of any retirement system, may purchase service credit for this time. City Members who were previously in the 1981 Plan may also purchase service credit for the mandatory one-year waiting period.
 
Further, a City Member in a position not previously included within the field of membership, but which has since been brought within the field of membership, may purchase service credit for the period of service not previously included within the field of membership.
 
Hourly or Part-Time Service
After they have accrued at least 10 years of service credit, City Members may purchase full-time service credit for time prior to January 2, 1997, during which they were in a position with the City that was less than full-time or otherwise ineligible for membership.
 
5-Year “Air Time” PSC
City Members who were hired before July 2, 2005 and have earned at least five years of service credit are eligible to purchase up to five years of “Air Time” – time that is in no way associated with City employment – in addition to any other service credit the Member is eligible to purchase. Air Time counts toward the City’s 10-year vesting requirement.
 
Repayment of Previously Refunded Contributions
City Members who terminated employment and received a refund of contributions, and are later rehired by the City and return to SDCERS membership, may redeposit the amount refunded, in lump sum, plus interest at the actuarially assumed rate at the time the contract is prepared, to re-establish those years of service credit with SDCERS.
 
It is in your best interest to redeposit refunded contributions immediately upon re-entering SDCERS membership. Until your contributions are redeposited, contributions are deducted from your paycheck at your new age rate (adjusted for the break in service), not at the original age rate prior to taking a refund of your contributions. If this happens, you will not receive a refund for the difference after your age rate is adjusted.

Types of Purchases of Service Credit for Port Members

Port Members generally may not purchase service credit for approved leaves of absence until they have returned to active Port employment. Port General Members hired or rehired on or after January 1, 2009 do not become SDCERS Members until they have completed five consecutive years of Port employment.
 
Family Medical Leave Act (“FMLA”), California Family Rights Act (“CFRA”), & Pregnancy Disability Leave (“PDL”)
A Port Member may purchase service credit for a period during which they were on an approved unpaid leave of absence under the FMLA, CFRA, or PDL from the Port, such as maternity leave and extended medical leave. 
 
Military Leave
Port Members may purchase any approved unpaid military leave from the Port that is covered under the Uniformed Services and Reemployment Rights Act (“USERRA”). USERRA provides guidance for the purchase of military time covered by USERRA. See the Department of Labor website for more information.
 
Other Unpaid Approved Leave of Absence
A Port Member may purchase service credit for any unpaid approved leave of absence from the Port that began before January 2, 1997, if they left their contributions on deposit with SDCERS.

Types of Purchases of Service Credit for Airport Members

Airport Members generally may not purchase service credit for approved leaves of absence until they have returned to active Airport employment.
 
Long Term Disability (“LTD”)
Airport Members may purchase service credit for a period during which they were on an unpaid leave of absence and receiving LTD benefits under a program sponsored by the Airport, City, or Port, as long as they left their contributions on deposit with SDCERS during this period.
 
Family Medical Leave Act (“FMLA”)
An Airport Member may purchase service credit for a period during which they were on an approved unpaid leave of absence approved by the Airport, City, or Port under the FMLA, such as maternity leave and extended medical leave. 
 
Military Leave
Airport Members may purchase any approved unpaid military leave from the Airport that is covered under the Uniformed Services and Reemployment Rights Act (“USERRA”). USERRA provides guidance for the purchase of military time covered by USERRA. See the Department of Labor website for more information.
 
Other Unpaid Approved Leave of Absence
An Airport Member may purchase service credit for any unpaid approved leave of absence approved by the Airport, City, or Port, that began before January 2, 1997.
 
Repayment of Previously Refunded Contributions
Airport Members who terminated employment and received a refund of contributions, and are later rehired by the Airport and return to SDCERS membership, you may redeposit the amount you were refunded, in lump sum plus interest at the actuarially assumed rate at the time the contract is prepared, to re-establish those years of service credit with SDCERS.
 
It is in your best interest to redeposit refunded contributions immediately upon re-entering SDCERS membership. Until your contributions are redeposited, contributions are deducted from your paycheck at your new age rate (adjusted for the break in service), not at the original age rate prior to taking a refund of your contributions. If this happens, you will not receive a refund for the difference after your age rate is adjusted.

Member Contribution Rate Adjustments

An Airport or City Member’s current contribution rate will be adjusted when they repay previously refunded contributions, purchase optional membership, 1981 plan waiting period, and/or mandatory waiting periods as follows:
  • If there is no break in service, the rate will be adjusted to the Member’s age at the original date of employment in a position eligible for membership.
  • If there is a break in service, the rate will be adjusted to the Member’s original age at entry in SDCERS, plus an age adjustment equal to the period of time the Member was terminated. 
SDCERS will adjust the Member’s contribution rate at the beginning of the first full pay period after the Member completes their PSC contract. If the adjustment causes underpaid contributions based on a change of benefit tiers, then the Member must repay the underpaid contributions with interest.

Cost to Purchase Service Credit

The cost of a PSC is the price as of the date the PSC contract is created and issued to the Member. The Board determines the “employee-only” and “employer-only” costs of service credit based upon the recommendation of the Board’s Actuary, and the Board may change these costs at any time upon the Actuary’s recommendation.
 
Most PSC contracts are based on your age, years of service, and highest average pensionable compensation at the time the PSC request is submitted. However, some contracts, such as purchase of probationary time for City Members, may be calculated differently. Further information may be found under Board Rule 4.30 in SDCERS’ Board Charters, Policies, and Rules.

Methods of Payment

Members generally may choose to pay for their PSC in a single lump sum payment or in installments over a fixed period, except for Repayment of Previously Refunded Contributions and Air Time contracts which must be paid by lump sum. SDCERS will treat all amounts paid by Members for PSCs as member contributions.
 
Lump Sum Payment
Subject to any limitations or conditions imposed by applicable tax laws and regulations, a Member may pay for their PSC in lump sum by:
  1. Direct transfer of pre-tax funds to SDCERS from any tax-qualified defined contribution plan maintained by the City, such as SPSP, 401(k), or a similar Port or Airport plan;
  2. Rollover of pre-tax or post-tax funds from a qualified plan or IRA; or
  3. Any other source allowable under federal law.
The contract will specify whether pre-tax or post-tax funds may be used depending on the type of service purchased.
 
Installment Contracts
If a Member elects to make installment payments, they must agree to an installment contract with a payment plan that includes the cost of the PSC plus installment interest, and the payments must be made through post-tax payroll deductions. Payments will be deducted from the Member’s paycheck each pay period. The payments must be at least $20 per pay period and interest will be added to the purchase cost using the actuarially assumed interest in effect at the time the proposed PSC contract is issued.
 
NOTE: All installment contracts are post-tax only as of October 8, 2009. Pre-tax installment contracts are no longer allowed.

Termination of Installment Contract

A Member may not rescind a completed and fully paid PSC contract. However, a Member may be able to terminate an installment contract that is not completed. An election to terminate a PSC contract is irrevocable.
 
Voluntary Termination of Post-Tax Installment Contract
Terminate and Refund: An active Member who requests to terminate and receive a refund of a post-tax PSC contract before it is fully paid will receive a refund of all monies paid under the contract, including interest posted to the member’s account as of the date of the request.
 
Terminate and Accelerate Payments: An active Member may elect to terminate and accelerate payments only if permissible under federal tax law. Under this option, the Member must complete payment of the balance within 60 days of terminating the contract. Failure to pay the balance of the contract within 60 days, including interest due at that time, will result in termination and refund of all monies paid under the contract pursuant to the above paragraph.
 
Voluntary Termination of Pre-Tax Installment Contract
Pre-tax installment contracts, only offered prior to October 8, 2009, cannot be terminated unless the Member dies, retires, or terminates employment with the City, Port, or Airport.
 
Death of Member
If a Member dies before completing a PSC installment contract, the contract terminates and the Member’s beneficiary must make an election within 60 days from notification by SDCERS to:
  1. Receive a refund of the amount paid to date, plus interest; or
  2. Receive credit for the service credit purchased as of the date of the Member’s death. 
However, if a Port Member dies while on military leave covered by USERRA, the Port Member’s beneficiary also has the option to pay off the remaining balance of the PSC contract prior to receiving any applicable death benefits. This option is not available for beneficiaries of City and Airport Members.
 
If SDCERS does not receive the beneficiary’s election within 60 days after notification by SDCERS, then SDCERS shall implement option (b) above.
 
Retirement (Including Disability Retirements)
No pension benefits will be calculated or paid until the status of all active contracts is completed or resolved. The payment of the installment contract balance must be received by SDCERS no later than 60 days after the effective date of retirement. If a Member is unable to complete a PSC installment contract due to retirement, the contract is terminated and the Member may elect to:
  1. Receive a refund of the amount paid to date, plus interest; or
  2. Receive credit for the service credit purchased as of the Member’s retirement date.
Termination of Employment
If a Member is unable to complete a PSC installment contract due to termination of employment with the City, Port, or Airport, the contract terminates and the Member must elect within 60 days of termination to:
  1. Receive a refund of the amount paid, plus interest, on the PSC contract as of the date of termination;
  2. Receive credit for the service credit purchased as of the Member’s termination date. Interest paid on a PSC installment contract may not be applied toward the balance owed on the purchase;
  3. Request a refund of the Member’s accumulated employee contributions, including the amount paid on the PSC contract as of the date of termination, plus interest posted to the Member’s account as of the date of the request; or
  4. Pay the balance of the installment contract within 60 days after SDCERS receives written notice of the election. 
If the balance is not paid in full within 60 days after SDCERS receives written notice of the election, or if SDCERS is not informed of the Member’s election within 60 days after termination, then SDCERS shall implement option (b) above.

Interruption of Unpaid Installment Contract Due to Unpaid Leave

Members who miss payments on their PSC installment contracts because of an unpaid leave of absence must, within 60 days of their return to active service in a position eligible for membership in SDCERS, elect one of the options described in this section.
 
Post-Tax Installment Contract
When a Member with a post-tax installment contract returns to work after an unpaid leave of absence, the Member must:
  1. Resume the PSC installment contract and make up any missed payroll deductions by extending the payment period as necessary to complete the purchase without increasing the individual payments. Under this option, installment interest will be recalculated unless the leave of absence was military leave covered by USERRA;
  2. Terminate the contract by either terminating and refunding, or terminating and accelerating the payments; or
  3. Terminate the contract and receive credit for service credit purchased as of the last installment payment made prior to the leave of absence.
If a Member fails to make an election within 60 days of the date the Member returns to work after an unpaid leave of absence, they will be deemed to have elected to resume the contract. 
 
Pre-Tax Installment Contract
When a Member with a pre-tax installment contract returns to work after an unpaid leave of absence, the Member must resume the installment contract and make up the missed payroll deductions by extending the payment period as necessary to complete the purchase without increasing the individual payments. If the Member’s payment period is extended, the interest on the contract will be recalculated unless the leave of absence was military leave covered by USERRA.
 
Ineligible or Unable to Complete an Installment Contract
A Member may not complete an installment contract upon return from unpaid leave of absence if the Member returns to employment in a position not eligible for membership in SDCERS. If this happens, the installment contract will remain suspended until the Member is once again placed in a position eligible for membership, at which time the Member may complete the purchase under the previous options.
 
Should the Member die, retire, or terminate employment before becoming eligible for membership, the Member or the Member’s beneficiary (in the case of a deceased Member) may then complete the purchase according to the applicable options outlined under “Termination of Installment Contract.” However, a Member may terminate a post-tax PSC installment contract at any time, including while the member is employed with the City in a position not eligible for membership.

 

The information in this publication is intended to provide Members with a current and accurate summary of pension benefits. However, it is not a legal document or a substitute for the law. The language used in this publication is not intended to create a contract between the City, Port, or Airport and any Member. The governing plan document adopted by the Member’s employer governs the operations of SDCERS. Accordingly, if any information in this publication conflicts with the employer’s plan document, the law, or the Board Rules, then the plan document, law, or Board Rules must prevail.