MainePERS Retirement Options: Payments, Refund and Buyback

Updated October 2, 2026. Quick answer: State employees and Teachers in MainePERS are covered by the same regular retirement plan. The benefit is the average of the three highest years of earnable compensation times years of service credit times a 2% accrual rate. At retirement the member makes a choice, which a written notice can revoke until the first payment (5 M.R.S. 17803(4)), among the Full Benefit option (the highest payment, nothing for a beneficiary), Option 1, which returns leftover contributions, and Options 2 through 8, which pay a beneficiary. Five years of service credit qualifies a member who was in service on October 1, 1999, returned to service after it, or was first in service on or after it; other members need 10 years at the applicable age (5 M.R.S. 17851(3-A)). A refund is all or nothing and gives up every MainePERS benefit. COLA applies to the first $24,186.25 of the benefit from July 1, 2022 (the figure is indexed each year), up to a 3% maximum annual increase (5 M.R.S. 17806(1)(A)).

More on public pension systems, topic by topic: Maine PERS service credit purchase, Maine PERS disability retirement and Maine PERS COLA.

What this page covers and what it does not

This page works from four MainePERS documents: the State Member Handbook, the Teacher Member Handbook, the Applying for Retirement page, and the Choosing a Benefit Payment Option brochure. It covers State employees and Teachers under the regular plan and says which handbook carries a rule wherever the two differ. Legislators, judges and local district employees are outside its scope.

The two groups share a plan. “While State employees and teacher members are covered by the same retirement plan, some plan provisions differ for legislators, judges and PLD employees.” Membership is mandatory for both: “As a State employee, you must become a member of MainePERS.” The Teacher handbook says that “membership in MainePERS is mandatory from the first date of employment”. The statute makes exceptions: “Membership in the State Employee and Teacher Retirement Program is optional for elected officials or officials appointed for a fixed term”, and “membership in the State Employee and Teacher Retirement Program is optional for substitute teachers” (5 M.R.S. 17651, 17652). Some State employees belong to a special plan instead: “Special plans typically differ from regular plans in the areas of retirement eligibility requirements, benefit determination, and contribution rates.” Special plan members should not apply the regular plan figures below. For the state tax side, see Maine retirement taxes and does Maine tax pensions.

The figures the handbooks state

How the benefit is built

MainePERS runs a defined benefit plan, and both handbooks use one formula: “AFC x Years of Service Credit X Accrual Rate (e.g. 2% or .02) = Annual Service Retirement Benefit under the Full Benefit option at Normal Retirement Age” Average final compensation (AFC) is defined this way: “This is the average of your three highest years of earnable compensation.” The State handbook says of the accrual rate: “The accrual rate for regular plans is 2%.” The Teacher handbook agrees: “The accrual rate is 2%.”

A computed example from assumed inputs, not a MainePERS figure: with an assumed AFC of $48,000 and an assumed 30 years of service credit at normal retirement age, the formula is 48,000 times 30 times 2%, a computed $28,800 a year, or a computed $2,400 a month. That is the Full Benefit amount, the starting point for every option below. The State handbook’s own example gives “$34,000 AFC x 25 years x .02 = $17,000 annual benefit (or $1,416.67 monthly)”.

Two rules can move the AFC. “There are two caps on the amount of earnable compensation that will be included in your AFC: earnings increases greater than 5% per year over the prior year; and 10% over the highest three years.” Under 5 M.R.S. 17001(13)(C)(1) the excess is left out “unless the cost of the additional actuarial liability arising from the excess increase is paid by the employer as provided in section 17154”. There is also a floor: “If you have earned 10 or more years of creditable service, your service retirement benefit under the Full Benefit option will not be less than $100 per month.”

When retirement can start, and the early retirement reduction

Everything turns on normal retirement age, the age at which retirement carries no early reduction. The Teacher handbook says: “Your normal retirement age is 60, 62 or 65, depending on which of the following applies to you:” The State handbook says the same for the regular plan, and the age depends on service credit and age on set dates, so a MainePERS estimate settles it. A member can retire at any age with 25 years: “You qualify to receive a benefit: once you have at least 25 years of service credit;” The State handbook has the same rule for the regular plan. The other route is reaching normal retirement age with a vested account: “If your final termination from MainePERS-covered employment is after September 30, 1999, you must have at least 5 years of service credit in order to qualify for a benefit.”

Retiring with 25 years before normal retirement age costs money. “If you have at least 25 years of service credit and decide to retire before you reach your normal retirement age of 60, 62 or 65, MainePERS must reduce your benefit based on how old you are in relation to your normal retirement age.” The rates: “If your normal retirement age is 62 or 65, your reduction would be 6% for each full year you are younger than your Normal Retirement Age (NRA).” “If your normal retirement age is 60, your reduction would be approximately 2¼% for each full year you are younger than age 60.” The statute sets the reduction differently: the amount is “reduced by applying to that amount the percentage that a life annuity due at age 60 bears to the life annuity due at the age of retirement”, and “the board-approved tables of annuities in effect at the date of the member’s retirement are used” (5 M.R.S. 17852(3)).

A computed example from assumed inputs, not a MainePERS figure: a member whose normal retirement age is 62 retires at 59 with more than 25 years of service credit. At 6% for each full year, 3 times 6 is a computed 18%. If the Full Benefit were an assumed $2,400 a month, taking the 18% off as a straight subtraction leaves 2,400 times a computed 82%, a computed $1,968 a month. The handbooks do not say whether the 6% is subtracted in one step or compounded, so that is a question for the MainePERS estimate.

The election at retirement: the nine payment options

Every retiring member picks a payment option, and the brochure frames the stakes: “This is an important one-time decision; please consider each option carefully.” The handbook adds: “Since it’s not possible for MainePERS to fully understand each member’s unique circumstances, we do not advise members on which option to select.” On how the reduction works: “Under those options, we first determine your service retirement benefit based on the Full Benefit option, then adjust based on several factors, including which option you choose.” The handbooks and brochure describe the options as follows.

The table carries no dollar reductions because the pages read publish none. For the general trade, see single-life versus joint-and-survivor pension and survivor benefit with a government pension.

Full Benefit, Option 1, and Options 2 through 8

The Full Benefit option is the largest payment and the least protective: “All benefits stop effective the first of the month following your death, regardless of the number of benefit payments you received.” Option 1 returns the member’s own money: “If, at the time of your death, any of the contributions you made to MainePERS, or the interest accrued on those contributions, remain on account, a one-time lump-sum payment will be made to your surviving beneficiary.” “Your contributions are reduced equally each month over a period of time based on your life expectancy.”

A computed example from assumed inputs, not MainePERS figures: with $60,000 of contributions spread equally over an assumed 240 months, each month uses 60,000 divided by 240, a computed $250. After an assumed 100 payments, 60,000 minus 100 times that amount leaves a computed $35,000 for a beneficiary. The handbooks do not state how long the real period is; it depends on age at retirement.

Option 2 continues the full payment: “The same amount you are receiving at the time of your death continues until the death of your designated beneficiary.” Option 3 is the half version: “One half of the amount you are receiving at the time of your death continues until the death of your designated beneficiary.” On an assumed $2,000 reduced monthly benefit, a computed example not a MainePERS figure, 2,000 times 100% is a computed $2,000 under Option 2 and 2,000 times 50% is a computed $1,000 under Option 3. Option 4 lets the member set the percentage: “You designate the percentage to continue to your beneficiary when you retire.”

Option 5 differs: “A monthly benefit that is shared by you and your beneficiary while you both are living.” The cap: “The percentage you designate to your beneficiary cannot be more than 49%.” The pop-ups protect the retiree if the beneficiary dies first: “Like Option 2, except your benefit will increase to the Full Benefit amount in the event that your beneficiary dies before you.” Options 7 and 8 do the same for Options 3 and 4. The pages read do not state how much the pop-up adds to the reduction, so compare the MainePERS estimates.

Beneficiaries, spouses and changes after retirement

The reduction depends on who is named. “The reduction from your full benefit amount is based on your age and your beneficiary’s age when you retire, and the benefit amount that your beneficiary will receive when you die.” Under Options 1 through 4 more than one beneficiary is allowed, and “Thus, each additional beneficiary that you designate will increase the reduction from full benefit.” A spouse’s role is notice, not consent: “MainePERS must have proof you notified your spouse before we process your first benefit payment.” By statute the duty applies to a married member who elects the Full Benefit option or names someone other than the spouse as beneficiary, who “must notify the spouse that the spouse is not the beneficiary”; “Payment of the qualifying member’s service benefit may not commence until certification has been received by the chief executive officer” (5 M.R.S. 17804(7)). The pages read do not describe a spousal consent form.

Until the first payment the option can be changed: a member “may revoke the qualifying member’s election of benefits and may elect another method of payment by giving written notice to the chief executive officer at any time before the first payment of the service retirement benefit” (5 M.R.S. 17803(4)). After that it is a one-time decision; only the beneficiary can change, in listed cases. Under Option 1: “If you select Option 1, you may change your beneficiary designation at any time.” A change under Options 2 through 8 has a cost: “A change of beneficiary under Options 2 through 8 will result in a change in your benefit amount.” The statute describes the one-time change differently. Where the recipient “has designated someone other than a spouse or ex-spouse as sole beneficiary, the recipient is permitted a one-time change in the designated beneficiary”, it says: “The amount of the recipient’s benefit may not change, and the amount of the new beneficiary’s benefit must be the same as the amount of the prior beneficiary’s benefit”. The change “may only be made prior to the death of the prior designated beneficiary” (5 M.R.S. 17804(5-F)).

Timing and paperwork

Retirement is not automatic. “You must apply to receive benefits; they do not begin automatically.” “MainePERS prefers to receive your application at least two to three months before your expected retirement date.”

The pages read do not state a deadline after which an option can no longer be changed before the first payment; confirm that with MainePERS before signing.

Cost-of-living adjustments

COLA is tied to inflation: “The Cost of Living adjustment matches the Consumer Price Index for all Urban Consumers (CPI-U)” “COLA is applicable to the first $20,000 of your retirement benefit (indexed).” The statute states the current base: “Effective July 1, 2022, the increase applies to that portion of the retirement benefit up to $24,186.25, which amount must be indexed in subsequent years by the same percentage adjustments granted under this section” (5 M.R.S. 17806(1)(A)).

A computed example from assumed inputs, not a MainePERS figure: a 2% COLA on the first $24,186.25 adds at most 24,186.25 times 2%, a computed $484 a year before the base is indexed. The statute states the ceiling: the automatic increase is “up to a maximum annual increase of 3%”, and “exceeds 3%, the board shall make whatever adjustments in the retirement benefits are necessary to reflect an annual increase of 3%” (5 M.R.S. 17806(1)(A), (B)).

Working after retirement

Both handbooks suspend a benefit when a member returns to the same employer before normal retirement age, but the triggers are worded differently. The State handbook points to a retiree who may “discuss or negotiate a return to work” before termination; the Teacher handbook to one who may “have an explicit understanding or agreement to return to work”. Both name the same second trigger, services “for more than 90 days in one year”. On other work: “You may work in any position not covered by the State Employee and Teacher Retirement program and still receive your monthly MainePERS retirement benefit.”

Leaving before retirement: leave contributions or take a refund

“If you stop working in a MainePERS-covered job and do not take a refund, your contributions continue to earn interest.” “You cannot borrow against the funds you leave in your MainePERS account.” Leaving the money in also keeps coverage alive: “Being vested protects your pension coverage even if you decide to leave your MainePERS-covered position, so long as you do not withdraw your contributions.” “If you are not vested, your account balance may automatically be refunded to you three years after you terminate.” The statute adds limits: the account must be inactive, as in “The member account has been inactive for 3 or more years”; “the amount of an automatic refund under this section for a member who has not reached the later of 62 years of age or normal retirement age may not exceed $1,000”; and a member who receives the refund “may, within 30 days of the issuance of the refund, return the full refunded amount to the retirement system” (5 M.R.S. 17706-A).

A refund is all or nothing. “By refunding your contributions, you give up your rights to any MainePERS benefits.” “MainePERS cannot give you a partial refund.” MainePERS’s own advice: “Since it may not be in your best interest to withdraw your contributions, we suggest you examine the pros and cons of taking a refund.” For the general trade, see pension refund versus leaving it.

A refund can be reversed by paying it back. “If you return to MainePERS membership, you may pay back to MainePERS the amount of your refund, plus applicable interest.” The statute sets two conditions: “The repayment must be made before the date any retirement benefit becomes effective for the member”, and interest runs “to the date the repayment or repayments are made, at a rate, to be set by the board, not to exceed regular interest by 5 or more percentage points” (5 M.R.S. 17703). “If you pay back this amount, you will receive service credit for the time covered by your refund.”

Rollover, withholding and the early distribution tax on a refund

“You may roll over all or a portion of your refund to another eligible employer plan that accepts rollovers or to an Individual Retirement Account/Annuity (IRA), with certain restrictions.” On tax, the handbooks differ. The State handbook says only: “All or a portion of your refund may be subject to state and/or federal taxes.” The Teacher handbook adds: “In addition, if you are under age 59½, your refund may also be subject to an IRS 10% early distribution tax.”

A computed example from an assumed $30,000 taxable refund paid directly, not a MainePERS figure: 20% withholding is a computed $6,000, leaving a computed $24,000 in cash, so a full 60 day rollover would need the withheld $6,000 from other funds. If the 10% additional tax applied and no exception fit, it would be a computed $3,000 more. Whether an exception applies depends on the member’s facts. Maine’s own treatment is on Maine retirement taxes.

Service credit: what is granted and what can be purchased

“You may be eligible to purchase additional service credit in the following categories.”

“There are specific eligibility and verification requirements to make these purchases.” The pages read do not state what a purchase costs. For the general mechanics, see pension buyback calculator.

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 MainePERS’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”. Both handbooks say a refund can be rolled over, with certain restrictions, so the IRS rules below matter for the choice between a direct rollover and cash. 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 pages read do not state the dollar or percentage reduction for any option; it depends on the member’s age, the beneficiary’s age and the option.
• The pages read do not state whether the early retirement reduction is a straight or compounded percentage, or how it combines with an option reduction.
• The pages read do not state how long the Option 1 contribution run-off lasts or how interest is counted in it.
• The pages read do not state how the two shares under Option 5 add up to the reduced benefit.
• The pages read do not state a last date for changing an option before the first payment.
• The pages read do not state what a service credit purchase costs.
• The pages read do not describe a lump sum retirement option or a deferred retirement option program; the lump sums described are the refund of contributions and the Option 1 remainder.
• Special State plans (Tables 1 and 2 of the State handbook) are outside this page.

MainePERS topic pages

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

Common mistakes

• Treating the option as reversible; the brochure calls it a one-time decision, and later changes are limited to the listed beneficiary cases.
• Choosing the Full Benefit option and assuming a beneficiary will receive anything; all benefits stop the first of the month after death.
• Taking a refund without realizing it must be all contributions and interest, and gives up every MainePERS benefit.
• Asking for a 60 day rollover of the full refund without other money to replace the 20% that must be withheld.

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

Sources

• Maine Public Employees Retirement System, source 1: https://www.mainepers.org/while-working/state-employees/state-member-handbook/
• Maine Public Employees Retirement System, source 2: https://www.mainepers.org/while-working/teachers/teacher-member-handbook/
• Maine Public Employees Retirement System, source 3: https://www.mainepers.org/retirement/applying-for-retirement/
• Maine Public Employees Retirement System, source 4: https://www.mainepers.org/wp-content/uploads/pdfs/member-handbooks-guides/Choosing-a-Benefit-Payment-Option.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.