Montana PERS Retirement Options: Payments, Refund and Buyback

Updated October 2, 2026. Quick answer: Montana Public Employees’ Retirement System (PERS) members choose one of four payment options at retirement: Option 1 (the largest monthly amount, life only), Option 2 (the same amount continues to a contingent annuitant), Option 3 (one-half continues) or Option 4 (a 10 or 20 year period certain). Generally the choice cannot be changed after the first benefit payment is accepted. A vested member who leaves covered work can leave contributions on account or take a refund, which ends the right to any PERS benefit, and a direct refund over $200 carries 20% federal withholding.

More on public pension systems, topic by topic: Montana PERS purchase of service, Montana PERS early retirement and Montana PERS GABA.

What this page covers and what it does not

This page works from one document: the Montana Public Employees’ Retirement System (PERS) Member Handbook, revised February 2026, published by the Montana Public Employee Retirement Administration (MPERA). It covers which payment option to elect, when that election is locked, refund versus leaving contributions, and buying service. Of the plan itself, the handbook says “PERS is a defined benefit retirement system.” “The monthly benefit you receive upon retirement is based on your years of service and your highest average compensation.”

The handbook also names a second plan: “Visit our website for more contribution information regarding the PERS Defined Benefit Retirement Plan or PERS Defined Contribution Retirement Plan.” A member in the defined contribution plan would need MPERA’s materials for that plan, which the handbook read here does not describe. The handbook is also a summary: “This handbook is not an official source of the law and rules and should not be taken as final legal authority.” Confirm anything consequential with MPERA before a form is signed. For the state tax side, see Montana retirement taxes and does Montana tax pensions.

What sets the monthly pension before any option is chosen

Every option starts from the same base amount. The handbook gives the formula: “Retirement Factor x Years of Service Credit x HAC”.

The statute words the two eligibility rows more broadly than the handbook table. MCA 19-3-901(1) says: “(1) A member hired prior to July 1, 2011, who has: (a) attained age 60 and has 5 years of membership service is eligible for service retirement; (b) attained at least age 65 before or while employed in a position covered by the public employees’ retirement system is eligible for service retirement regardless of the member’s years of membership service; or (c) 30 years or more of membership service is eligible for service retirement regardless of the member’s age.” MCA 19-3-901(2) says: “(2) A member hired on or after July 1, 2011, who has: (a) attained age 65 and has 5 years of membership service is eligible for service retirement; or (b) attained age 70 before or while employed in a position covered by the public employees’ retirement system is eligible for service retirement regardless of the member’s years of membership service.”

The statute also sets a floor under the factor formula. MCA 19-3-904(3) says: “(3) A member is entitled to receive the greater of: (a) the benefit provided pursuant to subsection (1) or (2); or (b) a monthly benefit that is the actuarial equivalent of the sum of: (i) double the member’s regular contributions and regular interest; and (ii) any amounts paid by the member to purchase service credit and membership service as provided by law.” The table’s brackets for the newer tier are those of MCA 19-3-904(2), which assigns the 1.5% factor to a member with “less than 10 years of membership service” and the one fifty-sixth factor to “10 or more years but less than 30 years of membership service”.

HAC is the highest average compensation. The window is not the final stretch of work: “This does not have to be your last 60 months of employment.” Early retirement is a reduction rather than a different formula: “MPERA will reduce the amount of your service retirement benefit by an Early Retirement Factor (ERF).” The handbook lists early retirement for the older tier at “Age 50 with at least five years membership service; or” and for the newer tier: “Members hired on or after July 1, 2011, are eligible for an early retirement benefit upon reaching age 55 with at least five years membership service.” The Early Retirement Factor itself is not published in the handbook. The statute adds a second early retirement route for the older tier and conditions the age route on not yet qualifying for service retirement. MCA 19-3-902(1) says: “(1) A member hired prior to July 1, 2011, who: (a) is not eligible for service retirement but has attained age 50 and has 5 years of membership service is eligible for early retirement; or (b) has completed 25 years or more of membership service is eligible for early retirement.” It also limits what counts as pay for a member hired on or after July 1, 2013. MCA 19-2-1005(2)(a) says: “(2) (a) Except as provided in subsection (2)(b), for a member hired on or after July 1, 2013, when calculating the highest average compensation or final average compensation for a member with at least the applicable 48 or 72 months of service credit, a retirement system or plan subject to this chapter may not include the following amounts of excess earnings in the calculation of the member’s highest average compensation or final average compensation: (i) for the first year included in the calculation, any compensation that is greater than 110% of the compensation paid to the member in the previous year; and (ii) for each subsequent year included in the calculation, any compensation that is greater than 110% of the compensation included in the calculation for the previous year.”

The handbook words the tier boundary two ways, “Members Hired Before July 1, 2011:” and “Members Hired After July 1, 2011:” so the handbook alone leaves a member hired on July 1, 2011 itself unclear. The statute settles it: MCA 19-3-901(2) covers a member “hired on or after July 1, 2011”, while MCA 19-3-901(1) covers one “hired prior to July 1, 2011”, so a member hired on July 1, 2011 is in the newer tier.

The election at retirement: what each option pays a survivor

Every retiree makes one election. “At retirement, PERS offers four benefit payment options.” “If you choose an option to provide income for someone after you die, your monthly retirement benefit will be reduced.” “The reduction depends upon the option you choose, your age, and the age of your named contingent annuitant.”

The general trade between a single-life and a survivor pension is covered on single-life versus joint-and-survivor pension.

Option 1: the largest check and a shrinking balance

“Option 1 will provide a monthly benefit for your lifetime only and is the largest monthly amount you can choose.” “That balance will be your contributions plus interest available at retirement, minus the total benefits already paid to you.”

The remainder is not a monthly pension for anyone. Each payment received reduces it, and once payments equal the contributions plus interest at retirement, nothing is left.

A computed example, using the inputs from the handbook’s own sample member (called Wanda there): a retirement balance of $28,796 and an Option 1 benefit of $562.50 a month. The balance divided by the monthly amount, 28,796 divided by 562.50, is a computed 51.2 months of payments before the balance is used up. If she died after an assumed 24 payments, 28,796 minus 24 times 562.50 leaves a computed $15,296 for the beneficiary. Both figures ignore interest and annual increases, so they are illustrations, not predictions.

Options 2 and 3: a lifetime benefit for someone else

“When you die, your contingent annuitant will receive the same monthly benefit for the rest of their life, subject to annual benefit increases.” “The benefit amount of Option 2 is less than Option 1 because the lifetime value of your benefit is spread over two lives instead of one.” The size of the cut is not a flat percentage: “The Option 2 factor is based on both your age and your contingent annuitant’s age at your retirement date.”

Option 3 is the half version. “When you die, your contingent annuitant will receive one-half of that amount for the rest of their life.” On the trade between the two, the handbook states: “Option 3 benefit would be larger than the Option 2 benefit.”

One legal limit applies to Option 2. “According to IRS regulations, if the age difference between you and your non-spouse contingent annuitant is greater than 10 years, you may not select Option 2.” “This limit does not apply to a spouse.” The handbook does not say whether a similar limit touches Option 3, so a non-spouse annuitant much younger than the member is a question for MPERA. The statute tests the age gap differently from that flat 10 years. MCA 19-3-1501(2)(a) says: “This option may be the chosen benefit only if the adjusted age difference between the member or designated beneficiary and the contingent annuitant, other than the member’s or designated beneficiary’s spouse, is 10 years or less. The adjusted age difference is either: (i) the excess of the age of the member or designated beneficiary over the age of the nonspouse contingent annuitant based on their ages on their birthdays in a calendar year; or (ii) if the member or designated beneficiary is under 70 years of age, the age difference determined in subsection (2)(a)(i) reduced by the number of years that the member or designated beneficiary is under 70 years of age on the member’s or beneficiary’s birthday in the calendar year that contains the benefit starting date.”

A recomputed example: the handbook’s sample member

The handbook includes a worked sample: 18 years of membership service and service credit, a highest average compensation of $1,750 a month, and age 65 with a contingent annuitant also 65. Recomputing: 1.7857% times 18 years times $1,750 gives a computed Option 1 amount of $562.50 a month, which matches the sample’s own printed result.

Each other option is the Option 1 amount times a factor the sample supplies. Starting from 562.50, a computed multiplication gives:

A computed comparison: the Option 2 check is $468.39 against $562.50 for Option 1, a computed $94.11 a month less, in exchange for the same amount continuing to the annuitant. The handbook says of its samples: “These calculations are for educational purposes only and do not cover all scenarios.”

Option 4: a guaranteed period

“Option 4 will provide a continuing benefit to one or more contingent annuitants.” Unlike Options 2 and 3, the survivor benefit is time limited: “Payments to the contingent annuitant(s) will stop when the guaranteed period ends.” There are two lengths, each with an age ceiling at retirement. For the shorter one, “You must be age 75 or younger when you retire to be eligible for this benefit.” For the longer one, “You must be age 65 or younger when you retire to be eligible for this benefit.”

On flexibility: “You can change your Option 4 contingent annuitant designation after retirement at will.” On pricing: “The Option 4 benefit will be calculated using Option 4 factors which are based on your age only.”

When the election becomes final, and the deadlines before it

“Generally, once you receive and accept your first benefit payment, you cannot change your retirement option, except under specific circumstances as described following Option 3.” For Options 2 and 3 the exceptions are narrow: “There are only two circumstances under which you can change your Option 2 or Option 3 payment or contingent annuitant.” One is that “your original contingent annuitant dies”. The other is that “you and your contingent annuitant divorce and there is no Family Law Order in place, giving your contingent annuitant the right to receive part of your benefit”.

In either case the member may “revert to the higher Option 1 retirement benefit that was available at the time of your retirement, plus any guaranteed annual benefit adjustments (GABA) you have received”, or name a new annuitant, and a clock applies: “To change your payment option or contingent annuitant, you must designate a new contingent annuitant or payment option in writing, within 18 months of the death of or divorce from the contingent annuitant.”

The retirement paperwork has its own dates. “At least three months before you plan to retire, you need to contact us for a benefit estimate form.” “Thirty days before you plan to retire, you must complete the retirement forms that accompanied your benefit estimate and return them to MPERA.”

Annual increases after retirement

“The Guaranteed Annual Benefit Adjustment (GABA) will increase your retirement benefit every year if you are eligible.” “You will receive your first increase in your retirement benefit payment that following January.” The size depends on when the member was hired. The statute adds an eligibility condition for the first increase. MCA 19-3-1605(3) says: “(3) Except as provided in subsection (2)(b), a benefit recipient is eligible for and must receive the minimum annual benefit adjustment provided for in this section if the benefit’s commencement date is at least 12 months prior to January 1 of the year in which the adjustment is to be made.”

For hires from July 1, 2007 up to 2013 the statute has a 3% exception. MCA 19-3-1605(4)(a) says: “(4) (a) The applicable percentage increase under subsection (1) is 3% if the member was hired or assumed office: (i) before July 1, 2007; or (ii) on or after July 1, 2007, and before July 1, 2013, and the benefit recipient is a member of a retirement system provided for in this title, and the guaranteed annual benefit adjustment provision for that member under that system is a 3% benefit increase.” MCA 19-3-1605(4)(b) says: “(b) The applicable percentage increase under subsection (1) is 1.5% if the member was hired or assumed office on or after July 1, 2007, and before June 30, 2013, and the benefit recipient is not otherwise covered under subsection (4)(a)(ii).” MCA 19-3-1605(4)(c) says: “(c) The applicable percentage increase under subsection (1) is 1.5% if the member was hired or assumed office on or after July 1, 2013, subject to reduction as provided in subsection (5).” As written, the second bracket ends before June 30, 2013 and the third begins on July 1, 2013, so a member hired on June 30, 2013 falls in neither of those two; only subsection (4)(a)(ii), with its 3% condition, reaches that date.

The handbook gives no dollar projection of the increases and does not say what sets the variable rate in a given year. It does say the increase reaches survivors: “GABA also applies to recipients other than members, such as contingent annuitants and survivors”. The statute excepts one survivor payment. MCA 19-3-1203 says: “The designated beneficiary of a deceased member may elect, by filing a written application with the board, to have the death payment provided for in 19-3-1202 paid in an actuarially equivalent form, subject to rules that the board may adopt. The annuity payments are not subject to increases that may be granted to other monthly retirement benefits.”

Refund of contributions versus leaving them on account

A member who leaves covered work before retiring faces a different decision. The handbook’s summary: “You may withdraw your contributions (plus interest) if you leave PERS-covered employment and don’t retire.” “If you withdraw your contributions, you will lose your right to any future retirement benefit.”

Who can choose depends on vesting. “The status of a member with at least five years of membership service.” For a vested member the choice is open: “If you are a vested member and decide to end your PERS-covered employment, you can leave your money on account to continue to earn interest; or you can receive a refund of your accumulated contributions (your contributions plus interest).” The general trade is laid out on pension refund versus leaving it.

Interest is credited either way, and “This rate is set by the Board and is tax-deferred.” The handbook does not state the percentage.

Smaller balances and non-vested members

Some members have no choice. “If you are not a vested member, IRS regulations require that we distribute your contributions to you as follows:”

In the handbook’s words, “If you have less than $200 in accumulated contributions, you will be sent a lump-sum refund to the address we have on file.” For the larger balance: “If you have more than $1,000 in accumulated contributions, you may leave your contributions on account and continue to earn interest.” The handbook introduces the first two rows for non-vested members, so it does not spell out how the thresholds apply to a vested member.

Taxes on a refund, and how a rollover changes them

“The pre-tax portion of your accumulated contributions is subject to state and federal taxes when refunded directly to you in a lump-sum.” On withholding: “If you receive a refund greater than $200 directly, the IRS requires us to withhold 20% for federal income tax purposes.” On the early withdrawal tax: “Refunds taken before the age of 59 ½ are subject to an additional 10% penalty for early withdrawal.” The handbook says a member may avoid both by rolling over “the taxable part of your refund into an IRA or other eligible retirement plan within 60 days”.

A computed example from an assumed $5,000 taxable refund paid directly, not a PERS figure: 20% withholding is 5,000 times 20 divided by 100, a computed $1,000, leaving a computed $4,000 paid in cash. The withheld amount is an advance on federal tax, not the final tax, and the 10% additional tax, if it applies, is separate. State treatment is covered on Montana retirement taxes.

Coming back after a refund, and buying service

A refund can be partly undone, at a price. “You may reinstate the refunded service through a service purchase.” “To purchase the refund, you must repay the accumulated contributions you received and pay the interest that would have been credited to your account had the refund not taken place.” The statute sets a different interest basis. MCA 19-2-603 says: “The person, while either an active or inactive vested member, may reinstate that membership service or service credit by redepositing the sum of the accumulated contributions that were refunded to the person at the last termination of the person’s membership plus interest at the actuarial assumed rate of return in effect at the time of the redeposit.” The pension buyback calculator covers the general arithmetic of a buyback; the PERS cost comes only from an MPERA cost statement.

Other service can be bought as well. “As a PERS member, you can purchase service at any time before retirement.” Some types need vesting. For military service: “At any time prior to retirement, you may purchase up to five years of your active military or reserve military service at the actuarial cost.” The statute narrows both purchase statements. MCA 19-2-704(2) says: “(2) Subject to any statutory provision establishing stricter limitations, only active or vested inactive members are eligible to purchase or transfer service credit, membership service, or contributions or to redeposit amounts withdrawn under 19-2-602 .” For military service MCA 19-3-503(1)(a) says: “(1) (a) Except as provided in subsection (1)(b) and subject to 19-3-514 , a member with at least 5 years of membership service may, at any time prior to retirement, file a written application with the board to purchase service credit and membership service for up to 5 years of the member’s active service in the armed forces of the United States, including the first special service force or the American merchant marine in oceangoing service during the period of armed conflict, December 7, 1941, to August 15, 1945.” MCA 19-3-503(1)(b) says: “(b) A member is not eligible to purchase active military service credit and membership service under subsection (1)(a) if the member is eligible to receive credit in the system for that service under 19-2-707 .” MCA 19-3-514(1) says: “(1) Except as provided in subsection (2), a member may not purchase more than a combined total of 5 years under 19-3-503 , 19-3-511 (3)(b), 19-3-512 , 19-3-513 , and 19-3-515 .”

On paying: “Cost statements are only valid for 30 days.” “You can pay for a service purchase in one lump sum within 30 days of the date of your cost statement or make monthly payments.” The statute is broader than a lump sum or monthly payments. MCA 19-2-704(3) says: “(3) An eligible member who wishes to redeposit amounts withdrawn under 19-2-602 or who is eligible to purchase service credit as provided by the statutes governing the retirement system to which the member belongs may elect to make a lump-sum payment by personal check or rollover of funds from another eligible plan, to make installment payments, or to make a combination of a lump-sum payment and installment payments.” MCA 19-2-704(4) says: “The minimum installment period for payments is 3 months, and the maximum installment period is 5 years.” The 30-day lump-sum window is not in the statute sections read. On taxes, “Payments made directly to MPERA are not pre-tax.”

What the IRS adds on tax

A refund or lump sum from a public pension is a distribution, so the IRS rules apply on top of PERS’s own. On withholding, the IRS says that a taxable eligible rollover distribution paid to you “is subject to mandatory income tax withholding (generally at a rate of 20%), even if you intend to roll it over later”, and that if you roll it over yourself “you’ll have to add funds from other sources equal to the amount withheld”. The handbook says the IRS requires 20% withholding on a refund paid directly to the member and that a rollover within 60 days avoids it. The rollover clock, if the money is paid to you: “you have 60 days from the date you receive it to roll it over to another eligible retirement plan”.

On early distributions the IRS says “the law imposes a 10% additional tax on certain early distributions from certain retirement plans”. Its list of exceptions includes “Distributions made to you after you separated from service with your employer after attainment of age 55” and “Distributions made to a qualified public safety employee from a governmental plan”. Whether an exception fits a particular refund depends on your own plan and facts, so confirm it with a tax preparer before you take one.

What this page could not settle

• The handbook read does not state the Early Retirement Factor, the Option 2, 3 or 4 factors, or how they are produced; the sample’s factors are one example.
• The handbook does not say whether a member hired on July 1, 2011 itself falls in the older or the newer tier; its headings use before and after, while one line uses on or after. The statute puts the boundary at “hired on or after July 1, 2011” (MCA 19-3-901(2)).
• The handbook does not state the retirement factor for exactly 10 years of membership service in the newer tier, because its two lines say more than five and less than 10, and more than 10 and less than 30. The statute puts exactly 10 years in the one fifty-sixth bracket, “10 or more years but less than 30 years of membership service” (MCA 19-3-904(2)(b)).
• The handbook does not state whether a spouse must consent to a payment option without a survivor benefit, or to a refund.
• The handbook does not state the interest rate credited on contributions; it says the Board sets it.
• The handbook does not describe a lump sum retirement option or a deferred retirement option program; the lump sums it describes are the refund, the Option 1 balance, and the death payment.

Montana PERS topic pages

Each row links to the page that reads one topic in the Montana PERS member documents: the topic, then the summary that page carries.

Common mistakes

• Electing Option 2 or 3 and assuming it can be changed later; the handbook allows a change only when the annuitant dies or the couple divorces with no Family Law Order, within 18 months.
• Choosing Option 1 and expecting a monthly pension for the beneficiary; only a balance of contributions plus interest less payments received is left, if any.
• Taking a refund without realizing it ends membership and the right to any future PERS benefit.
• Expecting the full balance from a direct refund; 20% federal withholding applies to a direct refund over $200.

Related on this site: Montana retirement taxes, does Montana tax pensions, single-life versus joint-and-survivor pension, pension refund versus leaving it, pension buyback calculator and public pension retirement decisions by system.

Sources

• Montana Public Employee Retirement Administration, source 1: https://mpera.mt.gov/_docs/Handbooks/PERS.pdf
• IRS, Topic no. 413, Rollovers from retirement plans (irs.gov): https://www.irs.gov/taxtopics/tc413
• IRS, Topic no. 558, Additional tax on early distributions from retirement plans other than IRAs (irs.gov): https://www.irs.gov/taxtopics/tc558

Sources: the primary documents linked above, read on October 2, 2026. General information from each system’s own published materials, not legal, tax or financial advice. Your own member statement and the system’s current rules decide your benefit, and a pension counsellor at the system or a fee-only adviser is the right place to confirm anything consequential.