Purchasing Additional Benefit Service

[RCK]

I am reviewing calculations for an acquaintance who is employed by a school district. This school district's DB plan allows the participant to purchase additional benefit service for military service that happened PRIOR to his employment by the district. When I told him to check it out, I assumed that the cost of the additional accruals would be in line with the value of those additional benefits, or even that he would get a break because of his service to the country.

He just got the "bid", and we were both surprised by the results. I calculated a value at 65 of the additional benefit of approximately $40,000, and a value today of that deferred benefit of approximately $16,000. The cost that they are quoting him is over $75,000.

So my question is whether anyone has experience with a situation like this, and if so do these numbers seem reasonable?

RCK

[david rigby]

Interesting. No such experience. Is it possible that the "procedure" which produced the $75K does not use (ie, understand) the time value of money?

[Guest Steve C]

It could be a function of local law.

Pennsylvania, for example, has a statute that allows police officers to purchase "non-intervening" military service credit under their local pension plan. The purchase price is based on the state-wide average of normal cost rates (EAN) under police pension plans.

That kind of arrangement may make sense to a state legislator, but it won't necessarily be a good deal for the plan participant.