Past service credit is offered to employees who were eligible for a retirement plan but did not participate. It is usually provided at a reduced rate and may require payment from the employee. It is important to sign up for retirement benefits from the start to avoid potential loss. Employers provide information on benefits through staff members and it is recommended to discuss options with a financial advisor.
Past service is credit offered to employees who were eligible to participate in a retirement plan but did not. Employees may not have participated because the retirement plan didn’t exist when they started work or because they chose not to enroll when they became eligible. Credit for past service is usually provided at a reduced rate because otherwise it would be very expensive for the company to make payments from years in which the employee received no retirement benefits.
In a common example of how past service might work, Joe Q. The public might start working for Anycorp in 2000. In 2007, Anycorp implements a retirement plan as an employee benefit. If Joe Q. Public were eligible under current retirement plan standards as of 2001, Anycorp would give him a past service credit, making retirement payments for the six years he would be eligible for the plan. These payments can be spread over a period of time. If Anycorp had always had a retirement plan, but Joe Q. The public hadn’t signed up until 2007, it might as well have received a past service credit.
Employees may be required to pay to access a past service credit, depending on company policy and the situation. Companies that allow their employees to shop to receive past service credit provide information to their employees to show them how they can shop and how much they will have to pay. The option to transfer funds from retirement accounts to fund the payment is often an option. People should be careful before choosing this option, as it may not be in their best interest; a financial advisor can provide information about available options and the best choice.
People who start working for an employer and don’t join the pension plan with the idea of possibly getting a pension adjustment later should think carefully. Because past service credits are offered at a reduced rate, every year someone not in the retirement plan accounts for a potential loss. Signing up from the start gives people access to full retirement benefits.
Understanding employee benefits can get tricky. Employers who offer benefits provide information through staff members who are responsible for managing benefits and assisting employees in applying for benefits. It can be helpful to get information from these staff members and discuss your options with a financial advisor. Some options may be better for people in special situations.
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