Public pension members who plan to buy extra service credit have a deadline that most of them have never heard of. CalPERS says that for purchases elected on or after Jan. 1, 2028, a member can no longer pay the balance off by taking a smaller pension for life. Instead, any balance still owed at retirement has to be paid in full within 90 days of the retirement date.
What service credit is and how it is paid for
Service credit is the time that counts toward a CalPERS pension. Members can buy more of it, for example to cover a stretch of public service not already credited or to convert from a lower benefit tier. A bigger credit total means a bigger monthly check in retirement.
Today there is a payment method many members use. It is called an annuity equivalent reduction, or AER, and CalPERS describes it in its guidelines as an alternative way to pay a remaining balance at retirement. Under AER, the monthly pension is cut by an amount the system calculates to be equal to the balance owed. The size of the cut depends on the member’s age, life expectancy and the balance left when they retire. Interest keeps building on the balance until retirement.
The guidelines add that once AER is applied, “the election is irrevocable.” The lower pension continues for as long as a monthly benefit is paid to the member or a beneficiary. For anyone who picked AER to avoid a large bill at the end of a career, that tradeoff lasts for life.
The new law and the Jan. 1, 2028 line
The change comes from Senate Bill 939 by state Sen. Laird. It was approved by the governor and filed with the Secretary of State on Aug. 17, 2026 as Chapter 110 of the Statutes of 2026, according to the bill’s text and status. CalPERS sponsored it. A CalPERS board agenda item dated Aug. 26 lists it under the name “Simplification of Service Credit Payment Options.”
The new rules apply to service credit purchases, tier conversions and redeposits elected on or after Jan. 1, 2028. For those, the bill says the payment is due when the member retires. The money must reach the system within 90 days after the retirement effective date. If any part of the balance is not paid, the service credit is cut in proportion to what is unpaid.
The bill limits the AER option to elections made before Jan. 1, 2028. CalPERS published its own notice of the change on Sept. 22, 2026, and it says an AER election has to be received before Jan. 1, 2028 to keep that option.
Dec. 31, 2027 is the last day to elect a CalPERS service credit purchase and still pay for it with a permanent pension reduction, and it catches every member who is weighing a purchase.
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Who is caught by the change
The notice names two groups. One is members who buy service credit of any kind. The other is State Second Tier members converting to a better benefit formula. CalPERS gives the formulas as 1.25 percent at age 65 for Classic members and 1.25 percent at age 67 for members under the 2013 pension reform law, known as PEPRA.
The state agency has not published a dollar figure for what the change costs a typical member, and the answer depends on the purchase. A large purchase made late in a career is where the difference shows up most. Under the old rules, the balance could ride along inside a smaller monthly pension. Under the new ones, the money has to come out of savings, a loan or another source in the 90 days after the last day of work.
Purchases elected before the line are not touched. A member who elects a purchase on or before Dec. 31, 2027 can still choose AER, and CalPERS suggests starting four to six months ahead of that date so the paperwork is in on time.
Two ways the math can go
The choice for members still undecided comes down to cash now versus income later. A purchase elected by the end of 2027 keeps the AER path open, which spreads the cost across the rest of a member’s life through a smaller check. The tradeoff is that interest accrues until retirement and the reduction cannot be undone.
A purchase elected in 2028 or later moves the cost to the front. The pension itself stays whole, but the bill comes due within 90 days of retiring, which for some members will be a large lump sum at the moment a paycheck stops. A member who paid down part of the balance during their working years would owe less at the end.
The agency’s guidelines say members may make partial payments or pay in full before retirement. That option exists today and is not changed by the law. For members who expect to buy credit after 2027, steady payments before retirement are how a 90-day bill gets smaller.
What CalPERS has not said
CalPERS has not published sample costs, and the bill does not set a price on any purchase. The cost of service credit is figured separately for each member from age, salary and the type of service being bought. Anyone weighing a purchase would need an official cost estimate from the system, which is how members find out what a given purchase would cost on a given date.
Pricing out a purchase before Dec. 31, 2027
The first step for a member who has thought about buying service credit is to ask CalPERS for a cost estimate. The CalPERS website is the free route, and the notice linked above is the best place to read the agency’s own wording. A personal estimate has to come from the system itself.
It helps to line up the pieces before that call. The type of service being bought, the dates it covers, the planned retirement date and the amount the member could pay up front are the numbers that decide whether AER or a pay-off makes more sense. For State Second Tier members, the formula they would convert to is the other piece.
The date to work backward from is Dec. 31, 2027. CalPERS says an AER election must be received before Jan. 1, 2028, and it recommends starting four to six months earlier. The law that sets the line is on the books, and the agency’s notice and the bill text are where any later change would show first.
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This article was produced with AI assistance and edited for accuracy against the sources linked above.
