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Feb 20, 2020, 10:53 AM By MOSERSI will reach my 80 and out at age 52. Is there any penalties for retirement before age 55 once i meet the 80 and out requirements. I will have 27 years of service at 52.
No, there are no IRS tax penalties for taking your MOSERS monthly pension benefit prior to age 55.
If you are eligible for and elect BackDROP, you have three options for your BackDROP lump-sum payment. Before you make any decisions, we strongly recommend that you read the Special Tax Notice to ensure you understand the tax implications of your choice. We also encourage you to consult a tax professional. If you’d like to learn more about the tax advantages of rolling the lump sum over to a qualified employer plan, like MO Deferred Comp, read Thinking About the BackDROP?
- Cash Option: This is either one lump-sum payment at retirement or three annual installments. From any amounts paid in cash, we will deduct 20% for federal income tax (as required by the IRS) and any Missouri state income tax withholding you choose. You will be responsible for any IRS early withdrawal penalties that may apply. If you terminate service before the year you reach age 55, there will be a 10% early withdrawal penalty on any payments not rolled over, unless you meet another exception to the penalty. See the Special Tax Notice brochure for more information.
- Rollover Option: We will send your tax-deferred distribution directly to a qualified employer plan.
- Combination Cash & Rollover Option: You can take a portion of the lump sum in cash (less 20% for federal income tax, as required by the IRS, and any Missouri state income tax you choose to have withheld) and roll the rest over to a qualified employer plan. You will be responsible for any IRS early withdrawal penalties that may apply.
On another note, unless you have plans for medical coverage elsewhere, you may want to consider the cost of medical insurance in the timing of your retirement. The cost of medical insurance is significantly higher for retirees than it is for active state employees. Contact your medical insurance provider for coverage and premium options. For most state employees, that is Missouri Consolidated Health Care Plan (MCHCP). If you are employed at a college, university, or the Department of Conservation, contact your human resources/employee benefits office.
Mar 26, 2018, 8:42 AM By MOSERS
What happens if I leave state employment prior to my eligible retirement date under the Rule of 80? How is my monthly retirement benefit calculated if that happens, and when will I first be eligible to begin receiving my retirement benefit? Also, under this scenario, what retirement benefits, if any, would I lose if I left state employment prior to my Rule of 80 date?
If you are vested with MOSERS (you have at least 5 years of service*) and then leave state employment, you will be eligible for a lifetime monthly benefit, which will begin once you meet the age requirement (and all other legal requirements) and retire under a MOSERS defined benefit pension plan.
If you are a general state employee, your retirement benefit is calculated using a three-part formula:
Final Average Pay (FAP) x Credited Service x Multiplier = Monthly Base Benefit
(The multiplier is determined by your plan; 1.6% for MSEP; 1.7% for MSEP 2000/MSEP 2011.)
General state employees who are in the MSEP are eligible for normal retirement once they meet one of the following sets of age and service criteria:
- Age 65 + 5 years of service
- Age 60 + 15 years of service
- “Rule of 80” – (at least age 48) Age + years of service = 80 or more.
See What’s My Plan? (bottom of the MOSERS website homepage) with information about plan membership, retirement eligibility requirements, and other plan provisions.
If you are a member of MSEP and you leave state employment before reaching normal retirement eligibility, you may still retire under “80 & Out” (the Rule of 80). Plan provisions in MSEP allow members who terminate employment to “age into” the Rule of 80. (This does NOT apply to members of MSEP 2000 or MSEP 2011**.) However, keep in mind that leaving state employment before reaching eligibility will likely delay when you reach “80 & Out” and reduce your benefit because you will no longer be accruing service. So, you may have to wait longer to begin receiving a smaller benefit if you leave state employment prior to reaching the Rule of 80.
Keep in mind any of the following may affect your retirement eligibility: your retirement plan (MSEP, MSEP 2011, etc.), age, service, and if you retire directly from active employment versus leaving state government and waiting to retire. Contact a MOSERS benefit counselor to discuss your specific situation. You may also contact a MOSERS benefit counselor to request benefit estimates for various scenarios (including a scenario of leaving employment prior to retirement eligibility).
*The 5-year vesting for MSEP 2011 member went into effect on 1/1/2018, and MSEP 2011 members must be actively employed on or after 1/1/2018 to be covered by this change.
**Plan provisions for MSEP 2000 do not allow members to “age into” the Rule of 80/80 & Out. Plan provisions for MSEP 2011, do not allow members to “age into” the Rule of 90/90 & Out.
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We strive to provide the most accurate information possible in our answers to Rumor Central questions. However, occasionally, laws, policies or provisions change and individual circumstances may vary. Please contact a MOSERS benefit counselor or see the handbooks in our website Library for more detailed information. If there is any difference between the information provided in this blog or on the MOSERS website and the law or policies that govern MOSERS, the law and policies will prevail. See our Privacy, Security & Legal Notices for more information.