Updated October 8, 2026. Quick answer: A Municipal Employees’ Retirement System of Michigan defined benefit member chooses a payment option when applying: Straight Life, Life with 100%, 75% or 50% to a Monthly Pension Beneficiary, or a 5, 10, 15 or 20 year period certain. The choice cannot be changed after the first payment. Benefit formulas are set by each municipality, with a multiplier from 1.0% to 2.5%. Taking a refund of employee contributions and interest forfeits service credit for vesting and any monthly benefit, and employer contributions are not paid out.
What this page covers and what it does not
This page covers the defined benefit (DB) plan of the Municipal Employees’ Retirement System of Michigan (MERS), which the Handbook describes as an organization that “administers retirement plans for Michigan’s local units of government on a not-for-profit basis”. Each participating municipality, called the employer in MERS documents, chooses its own plan terms, so no single formula or vesting rule applies to every member. The page covers the generally applicable rules in MERS’s published documents, not any one municipality’s plan. The Defined Contribution and Hybrid plans are not covered, except for a move into a division that uses one.
It works from the Participant Handbook (dated August 20, 2026), the retirement application and guide (Form F-29), the spouse waiver (Form DB-021b), the DROP explanation and three MERS web pages, read on October 8, 2026. The Handbook says that “If this publication conflicts with the relevant provisions of the Plan Document, the Plan Document Controls”. State tax questions are on Michigan retirement taxes and does Michigan tax pensions.
How the benefit is figured
MERS’s website gives the formula: “Benefit plan multiplier multiplied by final average compensation (FAC) multiplied by years and months of service, divided by 12 for your monthly (Straight Life) amount.” The handbook says “The benefit multiplier is a percentage chosen by your employer and can range from 1.0% to 2.5%”, and “If your plan has a benefit multiplier of 2.25% or higher, your pension benefit will be capped at 80% of your FAC”.
MERS’s own example reads: “$45,000 (FAC) x 25 (years) x 0.025 (multiplier of 2.5%) = $28,125 yearly or $2,343.75 monthly.” A computed check from those inputs: $45,000 times 25 years times 0.025, divided by 12 months, is a computed $2,343.75 a month, matching the website.
When a pension can start, and retiring early
Eligibility is set by the employer. The Handbook says: “If you are vested, the most common retirement age is 60, but check with your employer as it may differ.” An employer may also adopt early retirement benefits: “These options allow employees to retire before the standard retirement age with a full, unreduced benefit.” Without such a provision, a member can still retire at “Age 55 with at least 15 years of service” or “Age 50 with at least 25 years of service”, but the cost is permanent: “doing so will permanently reduce your benefit by 0.5% per month for each month that you are younger than your employer’s standard retirement age”.
A computed example from an assumed $2,000 monthly Straight Life benefit, not a MERS figure: retiring an assumed 24 months before the standard age means 24 months at 0.5%, a computed 12.0% reduction, leaving a computed $1,760 a month for life.
How to apply, and the deadlines
The Handbook says to “Submit the online retirement application through your online account 45-90 days prior to your retirement date”. The form adds that “Applying outside this window may delay your first pension payment”, and that “Retroactive payments are not issued for late applications”.
The election: payment options and what each leaves a survivor
The Handbook lists the forms of payment. Straight Life is the “highest monthly payment paid for your lifetime, with no Monthly Pension Beneficiary”. A survivor option is “a reduced benefit that provides a chosen percentage to your beneficiary for life if you die”. The table below draws on the Handbook and the F-29 guide.
| Option | What the member receives | What a survivor receives |
|---|---|---|
| Straight Life | The highest benefit the member is eligible to receive | Benefits end the month following the member’s death; remaining contributions, if any, go to a named beneficiary |
| Option II, 100% to Survivor | A reduced monthly benefit (reduction not published in the documents read) | The beneficiary receives 100% of the amount the member was receiving |
| Option IIA, 75% to Survivor | A reduced monthly benefit (not published in the documents read) | The beneficiary receives 75% of the amount the member was receiving |
| Option III, 50% to Survivor | A reduced monthly benefit (not published in the documents read) | The beneficiary receives 50% of the amount the member was receiving |
| Option IV, period certain of 5, 10, 15 or 20 years | A monthly benefit for the member’s life | If the member dies inside the period, the beneficiary(ies) receive the payment until the period ends; nothing after that |
| Straight Life with an RS benefit, if the employer adopted one | Straight Life with no reduction | The spouse receives the employer-set share of the Straight Life benefit (50% in the Handbook’s example), if married at least one year before retirement and still married at death |
The F-29 guide explains that “You may leave a benefit for a beneficiary by taking a reduction to your pension benefit”. If the beneficiary dies first, “If your beneficiary predeceases you, your payment reverts to the Straight Life amount for the rest of your life, upon notification to MERS”. For a general comparison, see single-life versus joint-and-survivor pension.
How a period certain works, with computed examples
The guide’s period certain example: “if you elect the 10-year period, and die after 8 years, your beneficiaries will receive your monthly benefit for the remaining 2 years”. It also says “The number of years elected cannot exceed your life expectancy”.
Computed examples from an assumed $2,000 reduced monthly benefit, not a MERS figure: Option II would leave a beneficiary 100% of $2,000, a computed $2,000 a month; Option IIA 75%, a computed $1,500; Option III 50%, a computed $1,000. The $2,000 is invented because the reduction is not published in the documents read. For a period certain, an assumed $1,500 monthly benefit with 2 years left at the member’s death means 2 times 12 payments, a computed $36,000 to the beneficiary(ies), before any COLA.
What is irrevocable
The application form is blunt: “The option you elect cannot be changed once you receive your first pension payment”. The signature block repeats that “I fully understand that my choice is final and irrevocable after receipt of my first benefit payment”. The Handbook warns: “Please select your payment option carefully; it may not be changed”. For Options II, IIA and III, “Once you have received your first payment, you may not name a new beneficiary”. Option IV is the exception: “You may change your beneficiary(ies) at any time by completing the Option IV Beneficiary Change (Form 41)”.
Spousal consent and beneficiaries
For a married member, the default is Option II. The spouse waiver says that “a retiring participant who is married must elect to have their benefits paid in the Form of Payment Option II” (100% to Survivor, with the spouse as beneficiary), and “The retiring participant is permitted to elect another Form of Payment if their spouse consents to that election in writing”. The F-29 guide adds that “Their signature is required prior to MERS issuing your first payment”. See spousal consent to waive a joint-and-survivor annuity.
Before retirement, the Handbook says: “If married, your spouse must be named your Monthly Pension Beneficiary unless they waive this right in writing.” After a divorce, “Any designation or status of your former spouse as your beneficiary terminates upon entry of the judgment of divorce, unless otherwise required by law”.
The deferred retirement option program (DROP)
A DROP exists only where the employer offers one: “If your employer has adopted the DROP provision” MERS describes it this way: “The DROP allows you to continue working past your retirement eligibility date for a set, limited period of time (up to 5 years)” “If you’re eligible to retire without a reduced benefit, you may elect to enter into a DROP.” “Entering into a DROP is an irrevocable decision, so it’s important that you understand how it works.”
Terms: “Your years of service and final average compensation (FAC) will be finalized at the time you enter the DROP and will not be adjusted as you continue to work.” “The DROP will last for a set period, which can be 6-60 months.” “An interest rate of 0% or 3% may be added to the account balance on December 31 of each year.” “At the end of your elected DROP period, you must terminate your employment.” MERS adds that “individuals who participate in plans that offer both provisions may only choose one of those provisions when applying for retirement”.
MERS’s example: “The DROP adopted by Bob’s employer credits 100% of the pension benefit to the DROP account and a 3% interest rate.” A pension of $2,000 a month deposited for 60 months is a computed $120,000 before interest, yet the printed balance is $131,241.84, so the interest implied is a computed $11,241.84.
Leaving early is expensive: “If you choose to terminate employment before the end of the DROP period, a 20% penalty will be applied, leaving 80% of the DROP account balance to be paid out immediately.” Applied to MERS’s example balance, that is a computed $26,248.37 lost and a computed $104,993.47 paid out.
Taking the DROP balance: lump sum, rollover and withholding
At the end, “you will have 60 days to request either a lump sum payment of the account balance or transfer the balance to a qualifying retirement plan”. If nothing is said: “In the absence of other payment instructions, MERS will issue the full lump sum into a MERS IRA in your name.” On tax, for the rolled amount, “No income taxes will be withheld from the amount that is rolled over”; for the amount paid to the member, “A minimum 20% federal income tax withholding will automatically apply to the amount paid to you”.
A computed example from an assumed $10,000 portion paid directly to the member, not a MERS figure: 20% of $10,000 is a computed $2,000 withheld for federal tax at the minimum rate, which is not necessarily the final tax. See 20% withholding on a pension lump sum.
Leaving before retirement: leave it, defer, or take a refund
“Your options depend on whether or not you are vested, and how much service credit you have acquired.” For a vested member: “If you leave your job but are vested, you can wait to start your benefits until you reach age or service requirements. This is called deferring your benefits.” For a member who is not vested, “you have up to 20 years to go to work for another MERS employer to earn the additional service credit you need to become vested”. Vesting is set by the employer: “Your employer chooses what the vesting schedule is. The most common options are: ten years, eight years or six years.” Combining service with another MERS employer has limits: “You must have a minimum of one year of service credit with each MERS employer in order to combine service to meet the vesting and eligibility requirements”.
Taking a refund: what it ends
“If you take a refund of your employee contributions and interest, you will forfeit your service credits for vesting, as well as any monthly benefits.” “You do not receive any contributions that were made by your employer.” Interest: “All the contributions you make are posted to your account and interest is paid each December”.
Process: “To apply for a refund, your employer must first report your termination to MERS.” “You can expect a refund to be processed approximately 30 days after your employer reports your final wages and contributions to MERS.” Tax: “There may be early withdrawal penalties as well as federal income tax withholding charges.” “Refunds of employer contributions and other distributions may be taxed differently. Please check with your personal tax adviser for more details.”
The choice is a certain sum now against a lifetime benefit later; see pension refund versus leaving it. For a member who combines MERS service, “If you have taken a refund, you may be able to repay it”.
If a member dies before retiring
For a non-duty death of an active member, “You must be vested for your beneficiary to receive a monthly benefit”. “The surviving spousal beneficiary will receive the greater of a lifetime benefit of at least 85% of the Defined Benefit formula OR the monthly pension benefit payment option.” “If you are not vested, your beneficiary would receive a refund of your employee contributions. If you did not contribute, there is nothing to refund.” For a duty death the vesting test does not apply, and “Your spouse will automatically receive a minimum of 25% of your final average compensation”.
Buying service credit, cost-of-living adjustments and plan changes
On service credit purchases, the Handbook says: “Your employer must allow for service credit purchases.” “You can purchase service credit any time during your employment, but it can’t be used to meet your vesting requirement.” The limit: “You may purchase a maximum of five years, which includes service credit purchased with other MERS employers”.
“A cost-of-living adjustment (COLA) is an annual increase that may be applied to your base pension amount each January.” “The COLA can either be an automatic increase that is a part of your retirement benefit package, or something that is annually adopted by your employer.” “If your benefit includes a COLA and the payment option you chose at retirement was anything other than Straight Life, then the COLA would also apply to the monthly pension amount your beneficiary receives.”
In the Handbook’s example table, a $2,300.00 base pension reaches $2,357.50 after one automatic, non-compounding 2.5% COLA, and 2.5% of $2,300 is a computed $57.50. Under an annually adopted, compounding 2% COLA the same base reaches $2,346.00. Which type applies depends on the employer.
A member who moves to another division can change plans: “if you’re a MERS Defined Benefit member transferring to a division with the MERS Defined Contribution or Hybrid Plans, the new division’s plan will become your new retirement plan”. But “Your municipality may have adopted MERS Alternative Transfer Rules, which would offer you a choice to stay in your previous retirement plan, or to join the new plan”. Confirm with MERS and the employer what happens to the earned DB benefit before accepting a transfer.
Tax on the pension itself
“Federal income tax, and under certain conditions, state tax is required on your MERS pension, with the exception of any post-tax employee contributions you may have made.” Other Michigan systems are covered on Michigan MPSERS retirement decisions and Detroit GRS retirement decisions.
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 MERS’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”. MERS’s DROP explanation says that for the rolled-over portion no income tax is withheld, while the portion paid to the member carries a minimum 20% federal withholding. 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
On working after retirement with the same employer, the retiree web page says “You may work up to 1,000 hours in a calendar year”, and that the limit “has been waived through December 31, 2027”, while the Handbook says “There is no limit to the number of hours you may work in a calendar year”. MERS should confirm which applies.
- The pages read do not state how much Option II, IIA, III or IV reduces the monthly benefit; MERS points members to the online calculator.
- The pages read do not state the interest rate on employee contributions.
- The documents read do not say whether a refund can be rolled over to an IRA, only that early withdrawal penalties and federal withholding may apply.
- Each municipality sets its own multiplier, vesting schedule, FAC period, COLA, early retirement and DROP terms; none was read for any single employer.
- The Plan Document, which controls over the Handbook, was not read.
- Disability retirement, the Defined Contribution and Hybrid plans, retiree health care and the Act 88 reciprocal unit list were not worked through.
Common mistakes
- Treating the payment option as changeable later; MERS says the choice is final and irrevocable after the first benefit payment.
- Choosing a survivor option and expecting to swap the beneficiary; under Options II, IIA and III the beneficiary named at retirement cannot be changed.
- Taking a refund without weighing what it ends; MERS says it forfeits service credit for vesting and any monthly benefits, and employer contributions are not paid.
- Leaving a DROP early without counting the 20% penalty on the account balance.
Related on this site: public pension retirement decisions by system, Michigan retirement taxes, does Michigan tax pensions, Michigan MPSERS retirement decisions, Detroit GRS retirement decisions and pension refund versus leaving it.
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Answer againSources
- MERS of Michigan, Defined Benefit Plan Participant Handbook (PUB 2026, dated 2026-08-20): https://assets.mersofmich.com/forms/DBhandbook.pdf
- MERS of Michigan, Deferred Retirement Option Program (DROP) Participant Explanation (PUB 10906, 2026-03-19): https://assets.mersofmich.com/forms/DROPexplanation_Participant.pdf
- MERS of Michigan, Spouse Waiver Consent, Form DB-021b (version 2026-03-06): https://assets.mersofmich.com/forms/DB-021b_OnlineSpouseWaiver.pdf
- MERS of Michigan, Application for Defined Benefit Retirement with guide, Form F-29 (version 2026-03-18): https://assets.mersofmich.com/forms/F-29_DBretirement.pdf
- MERS of Michigan, Defined Benefit Plan, participant web page (read October 8, 2026): https://www.mersofmich.com/participant/programs/defined-benefit-plan/
- MERS of Michigan, Defined Benefit Plan, retiree web page (read October 8, 2026): https://www.mersofmich.com/retiree/programs/defined-benefit-plan/
- MERS of Michigan, Defined Benefit Refund, web page (read October 8, 2026): https://www.mersofmich.com/participant/programs/defined-benefit-plan/defined-benefit-refund/
- 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 8, 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.