Leaving TSERS: refund, or keep your account?

What happens to my TSERS account if I leave?

It stays with TSERS unless you ask for a refund. With at least 5 years of membership service you're vested and can draw a lifetime benefit later. With fewer, a refund of your contributions plus 4% interest is the only payment, and it gives up the service and retiree health coverage that came with it.

Vested: a benefit later

Vested after a minimum of five years of membership service: eligible for a lifetime benefit under the formula in effect at retirement if contributions are not withdrawn or transferred. Handbook: Qualifying for Benefits, Vesting

If you leave before retiring and leave your contributions in, you may receive a deferred benefit later once you meet eligibility, after five years of creditable service, computed with the formula in effect on your retirement date. Handbook: Qualifying for Benefits, Vested Deferred Benefit

A deferred benefit is figured with the benefit formula, and if you claim it before the unreduced age, the early retirement reduction applies. To see what yours might be, try the calculator (an example is filled in).

Taking a refund

Leaving before five years of creditable service, the only payment is a refund of contributions plus interest, no earlier than 60 days after leaving. Interest is currently 4% compounded annually on the prior year's ending balance. A refund forfeits the service and related benefits, including State Health Plan retiree coverage. Handbook: Refund of Contributions

Taxable portion: 20% federal withholding unless directly rolled over; possible 10% additional tax before 59 1/2; N.C. withholding of 4% on the taxable portion unless you had 5 years maintained service as of Aug. 12, 1989. Handbook: Income Tax, Income Tax on Returns, Purchases and Refunds

• You're vested after five years of membership service. If you leave and keep your money in TSERS, you can draw a benefit later once you meet the age and service rules.Handbook: Qualifying for Benefits, Vesting; Handbook: Vested Deferred Benefit
• A refund pays back your contributions plus 4% interest a year, no sooner than 60 days after you leave. Taking it gives up the service and the benefits tied to it, including retiree health coverage.Handbook: Refund of Contributions
• The taxable part of a refund gets 20% federal withholding unless you roll it over directly. You may also owe a 10% additional tax before 59 1/2.Handbook: Income Tax, Federal Income Tax

Other ways out

• Moving to a local government job? Instead of a refund, you can transfer your contributions and creditable service between TSERS and LGERS with Form 5TR, as long as you're an eligible member of the system you move to and haven't taken a refund from the one you leave. Transferred service counts toward eligibility and the benefit amount.Handbook: Reciprocity Between Systems, Transferring Service & Contributions Between Systems
• Even without a transfer, credit you keep in LRS, CJRS or LGERS counts with your TSERS credit to decide whether you qualify for a reduced or unreduced TSERS benefit.Handbook: Reciprocity Between Systems
• Unused sick leave can't be used to reach the minimum service for a deferred benefit, and it counts only if your last day with your last TSERS employer is within five years before your retirement date.Handbook: Adding to your Creditable Service, Sick leave
• If you leave your account open and never retire, the Retirement Systems is in most cases required to start paying you by April 1 of the year after you reach the IRS required age or stop working, whichever is later.Handbook: Required Minimum Distributions

Leaving also affects retiree health coverage: a refund gives it up, and a refund followed by rehire makes your rehire date your first-hired date.

Questions

See what you'd get if you stay vested → Buying back service