Understanding PSERS Retirement Options

While there are numerous nuances to PSERS (such as buying out-of-state credits, high-salary employees who have slightly different rules, etc.), the fundamentals of the pension are rather simple. The purpose of this comprehensive guide is to provide a general understanding of PSERS Retirement Pension Options. If you still have questions, Menninger & Associates Certified Financial Planners can understand your PSERS benefits and build a personalized retirement strategy. 

What Is the PSERS Retirement System?

The Public School Employees’ Retirement System (PSERS) is an agency of the Commonwealth of Pennsylvania that administers the retirement pension plan for Pennsylvania’s public school employees. The cost of this plan is shared with the plan members as well as with multiple employers throughout the Commonwealth of Pennsylvania.  

The cost of this plan is shared among: 

• All Pennsylvania public school districts
• Intermediate units
• Vocational or career technology schools
• Participating charter schools 
• Community colleges
• State-owned universities

In my 25 years serving as a financial planner in Pennsylvania, I have not encountered a more lucrative pension than PSERS, and I have seen many pensions from Fortune 100 companies and other governmental organizations. Further, in my experience as a financial planner, I have found that many participants in the PSERS pension system don’t really understand it.  

If you’re a PSERS member, understanding your plan options is essential to maximizing your long-term income.

Contact Menninger & Associates to speak with an experienced PSERS pension retirement planner

Old vs. New PSERS Retirement Plans Explained

The “old” PSERS pension plan is for participants who were employed prior to July 1, 2011, and the “new” PSERS pension plan applies to those who became employed after that date.  The new pension plan was created because of how lucrative the old plan was, and the new plan needed to either reduce the benefit or increase the funding to afford the cost of the benefit.

PSERS Class T-D and T-C (Old Plan)

Under the old PSERS system:

• The employee contributes 7.5% of their gross income toward the pension plan
  
• The recipient receives a pension multiplier of 2.5%, as described later. 

PSERS Class T-E and T-F (New Plan)

There are two programs referred to as T-E and T-F, and they essentially enable the participant to either reduce their benefit, or pay more to receive the higher benefit.  Plus, the member is placed in a “shared risk” with the employer, which means their contribution amounts will vary based on how well the pension fund’s investments perform.  All new members are automatically placed in the T-E program, and have a one-time ability to elect T-F within 45 days of receiving written notification from PSERS.

PSERS Class T-E

• The employee contributes 7.5% (or up to 2% more because of shared risk) of their gross income
  
• The pension multiplier is 2%

PSERS Class T-F

• The employee contributes 10.3% (or up to 2% more because of shared risk) of their gross income
  
• The pension multiplier is 2.5%.

 Speak with a certified financial advisor in Pennsylvania that is familiar with PSERS; speak with Menninger & Associates today.

When Can You Retire with Full PSERS Benefits?

Eligibility varies by class. Below are the key benchmarks for normal (full) retirement.

Class T-C and T-D (Old Plan):

• Age 62 with at least 1 year of service, or
• Age 60 with 30 or more years of service, or
• 35 years of service, regardless of age.

Class T-E and T-F (New Plan):

• Age 65 with at least 3 years of service, or
• 35 years of service, and the combination of age + years of service must equal 92 (e.g., 56 years old with 36 years of service).

Class T-G and T-H:

• Age 67 with at least 3 years of service, or
• Any combination of age + years of service that equals 97 (with at least 35 years of credited service).

Early Retirement Option

The pension is reduced by approximately 4% to 7% for each year the participant begins their pension before the normal/full retirement age (noted above).  However, there is a special provision for workers that were employed for at least 25 years and have attained age 55.  For workers who meet this eligibility, they can collect their pension only with a 3% reduction for each year taken prior to their normal retirement age. 

Purchasing Out-of-State Service Credits under PSERS

You must have a full year of service in PSERS before you are eligible to purchase out-of-state credits. You are permitted to purchase one year of out-of-state credit for each year of PSERS service, up to a maximum of 12 years. Credits can be purchased on a year-by-year basis as you accumulate PSERS service time. However, there are a few rules that must be followed in order to be eligible to purchase these credits:

Rules for Purchasing Out-of-State Service Credits:

• You must not be actively collecting, or have previously collected, benefits from the state pension system for which you are purchasing credits.
• You must withdraw all of your contributions and interest from the other state’s pension program.
• Note: When withdrawing, it is critical that you do not receive any employer contributions, as that will immediately disqualify you from being able to purchase the out-of-state credits.
• You will need to complete the Purchase Out-of-State Service (PSRS-278) form to apply for the credits. Your former employer will also be required to complete a portion of thais form.

Cost of Purchasing Out-of-State Credits

The cost of purchasing the credits is based on a formula, which is determined by your PSERS membership class. Class T-D and T-C use one formula, while Classes T-E, T-F, T-G, and T-H follow a different calculation. The detailed formulas are outlined in the Guidelines for OOS Purchase.

Payment Options for Out-of-State Service Credits:

• Lump Sum Payment – Due within 90 days of purchasing the credits
• Payroll Deductions – Withheld from your paycheck, subject to your current employer’s policies 
• IRA / 401(k) / 403(b) Rollover – You may roll over funds from a qualified retirement plan to pay for the credits
• Debt to Pension Benefit – A debt will be placed on your benefit, and your monthly pension will be reduced accordingly once you begin collecting. Keep in mind, this is a reduction on an increased benefit due to the additional credits.

In a phone call, a PSERS representative stated that, based solely on your PSERS benefit, purchasing out-of-state credits will never leave you worse off, even with the debt reduction applied to your pension. However, this does not factor in your broader financial picture. When evaluating whether purchasing the credits makes sense, you should compare the value of your out-of-state benefit to the additional PSERS benefit you would receive as a result of the credit purchase.

How to Calculate Your PSERS Pension

The PSERS benefit formula is straightforward:

Final Average Salary (FAS)    x    Years of Service    x    Multiplier (%)

The FAS is determined by finding the average of a member’s highest compensation received during any 3 school years.

For example, if a member retired after 20 years of services, their FAS was $60,000 and their multiplier is 2.5%, then their pension would equal:

              (20) x ($60,000) x (2.5%) = $30,000 per year, or $2,500 per month.

Note that the $2,500 per month pension is based on “single life”, which means that the pension will be paid monthly until the member dies, and nothing will go to any beneficiary.

If you need assistance figuring out your PSERS retirement amount or retirement planning, reach out Menninger & Associates. Our vision is to empower clients with educational financial resources, so they can better understand why we are providing the strategies and recommendations we do.

WATCH OUR VIDEO TO LEARN MORE ABOUT PSERS CALCULATIONS

PSERS Pension Adjustments & Survivor Options 

It can be easy to imagine the “risk” associated with collecting a pension that disappears if the member were to die.  Thus, PSERS (as well as nearly all pension administrators) provides several additional options that reduce the pension amount, but offer alternatives that would provide a benefit to the member’s beneficiaries.

Withdraw Contributions and Interest

At the time of retirement, the worker may withdraw their PSERS contributions and interest earned.  In doing so, it may reduce their benefit by around one-third, but it gives them a lump sum of money that can be rolled over into an IRA.   This allows the member additional flexibility for withdrawing assets and provides assets that can be passed on to a beneficiary. 

Option 1 (Declining Balance Death Benefit)

By taking a reduced monthly pension amount, it will create a declining balance PSERS death benefit that typically lasts around 17 years.  

For example, if a member was receiving a pension of $2,500 per month, there exists a death benefit (approximately $500,000) that is reduced by $2,500 per month as the pension is paid to the member.  Therefore, if the member dies after collecting their pension for 10 months, their beneficiary will receive $475,000 ($500,00 minus 10 x $2,500). 

Option 2 & 3 – Survivorship Options

The pension benefit is reduced, but it also provides a percentage of the benefit to the named beneficiary.  The PSERS survivor percentages are 100% (Option 2) or 50% (Option 3).  As can be expected, the largest reduction in the monthly pension benefit would be if the survivor receives 100% of the benefit if the member passes away.

How to Choose the Right PSERS Pension Payout Option

We strongly encourage anyone who intends to retire with their PSERS pension to seek advice from a skilled financial advisor.   There are many factors that will affect your decision:

• retirement assets (403(b), IRAs, etc.)
• the health and life expectancy of you and your beneficiary 
• the income you may have during retirement
• your income needs, and a variety of other factors

That said, It is very rare that we would recommend the single life annuity, as it provides the least amount of flexibility to the member and no beneficiary payout whatsoever.  We have seen others recommend a “pension maximization” strategy, which essentially has the member collect the full benefit (compared to the 100% survivor benefit) and take the difference to buy life insurance.  In our professional opinion, we have found that this difference rarely can buy enough life insurance to replace the survivor’s benefit, so this strategy should be reviewed very carefully prior to implementation.    

Get Expert Help with PSERS Retirement Planning

If you, or anyone you know, is considering retirement and collecting their pension from PSERS or any other entity, please feel free to contact us. We will take the time to teach you how PSERS retirement pension works, and work with you to assess the most effective payout method based upon your needs.

Call Menninger & Associates

Frequently Asked Questions about PSERS Retirement

Q1: What are the different PSERS classes?

A: Classes T-C, T-D (old), and T-E, T-F, T-G, T-H (new) define contribution rates, risk sharing, and benefit multipliers.

Q2: Can I collect PSERS and work part-time?

A: Yes, but restrictions apply — especially if returning to a PSERS-covered employer. Review PSERS reemployment rules before accepting post-retirement work.

Q3: How can I calculate my PSERS pension?

A: Use the PSERS Retirement Calculator or multiply Final Average Salary × Years of Service × Multiplier (%).

Q4: What happens to my pension if I die early?

A: You can select survivorship options or withdrawal strategies to ensure a beneficiary receives part of your benefit.

Other PSERS Resources:

ACTIVE MEMBER HANDBOOK

GUIDELINES FOR COMPLETING OUT OF STATE SERVICE

OUT OF STATE PURCHASE FACT SHEET

*Menninger & Associates is not affiliated with, sponsored by, or endorsed by PSERS

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