North Dakota TFFR: Annuity Options, Refunds and Service Credit

Updated October 16, 2026. Quick answer: North Dakota TFFR pays a lifetime pension of 2.0% of final average salary for each year of service credit, with vesting at 3 years for Tier 1 members and 5 years for Tier 2 members. At retirement a member picks a single life, 100% or 50% joint and survivor, or 10-year or 20-year term certain annuity, and eligible members can add a partial lump sum of 12 times the single life monthly benefit. A refund pays contributions plus 6% interest but forfeits all service credit, and 20% federal tax is withheld unless the taxable part is rolled over. The plan has no automatic cost of living adjustment.

What this page covers and what it does not

This page works from the Teachers’ Fund for Retirement (TFFR) Member Handbook from the North Dakota Retirement and Investment Office (RIO), dated 5/7/2026, and the fund’s actuarial valuation as of July 1, 2025. The handbook is newer and leads where the two differ. It describes itself as a summary: “If differences exist between the information in this handbook and state law, the law shall govern.” This is general information, not a benefit estimate.

Several figures depend on the member’s group, so each is labelled. The handbook defines Tier 1 grandfathered as “Members with TFFR credit on July 1, 2008, who were within 10 years of normal retirement as of June 30, 2013”, Tier 1 non-grandfathered as “Members with TFFR credit on July 1, 2008, and who were more than 10 years from normal retirement as of June 30, 2013”, and Tier 2 as “New or returning refunded members on or after July 1, 2008”. The statute defines the grandfathered group more narrowly than the handbook sentence. N.D.C.C. 15-39.1-04(13) says a tier one grandfathered member “means a tier one member who, as of June 30, 2013, is vested as a tier one member in accordance with section 15-39.1-11; and” then, in paragraph (a), “Is at least fifty-five years of age; or” and, in paragraph (b), “Has a combined total of years of service credit in the plan and years of age which equals or exceeds sixty-five.” Section 15-39.1-04(14) defines a tier one member as “a teacher who has credit in the system on July 1, 2008, and has not taken a refund pursuant to section 15-39.1-20 after June 30, 2008.” and (16) a tier two member as “a teacher who is not a tier one member.” On size, the valuation says “Active counts increased from 11,945 to 12,012”, a count of active members as of its date. Disability retirement, divorce orders and work after retirement are outside this page. Teachers with service in North Dakota’s public employees plan should read the handbook’s dual member rules and North Dakota NDPERS retirement decisions.

When a TFFR pension can start

Vesting comes first. The handbook says: “Tier 1 members must earn 3 years of service credit in North Dakota to become vested members of TFFR.” “Tier 2 members must earn 5 years of service credit in North Dakota to become vested members.”

The statute adds two routes to vesting that those handbook sentences leave out. N.D.C.C. 15-39.1-11 says: “When a tier one or tier two member has attained normal retirement age that member has a vested right to a retirement annuity under this chapter.” Under 15-39.1-10.3(1)(a), “For the purpose of determining vesting of rights and eligibility for benefits under this chapter, a teacher’s years of service credit is the total of the years of service credit earned in the fund and the years, with twelve months of compensation equal to a year, of service employment earned in any number of the following alternate plans:” the public employees retirement system (except an “eligible employee” as defined in section 54-52-02.15) and the highway patrol troopers’ retirement system. It continues: “Service credit may not exceed one year of service in any fiscal year in determining vesting and benefit eligibility.”

The handbook’s reduction wording is: “Tier 1 Grandfathered Member are eligible at age 55 or older. Benefits are reduced by 6% for each year the member’s retirement age is less than age 65 or the Rule of 85 (whichever is earlier).” “Tier 1 Non-Grandfathered or Tier 2 Members are eligible at age 55 or older. Benefits are reduced by 8% for each year from the earlier of age 65 or the later of age 60 or the Rule of 90.” On leaving covered employment: “A vested member who leaves covered employment in North Dakota may defer receiving their retirement benefit until reaching an eligible age.”

How the monthly benefit is figured

The handbook gives the formula as “FAS × Service Credit × 2.0% = Single Life Annuity (Monthly Retirement Benefit)”. Final average salary (FAS) is, in its words, “Tier 1 Member: The average of your 3 highest annual salaries” for Tier 1 and “Tier 2 Member: The average of your 5 highest annual salaries” for Tier 2. On the rate: “The rate is fixed at 2.0% by the North Dakota State Legislature.” The valuation prints the same rate as “2.00% of FAS times credited service” and defines FAS as an annual average “divided by 12”, which is how the examples treat it.

The statute states the formula in monthly terms. N.D.C.C. 15-39.1-10(2) says: “The amount of retirement benefits is two percent of the final average monthly salary of the member multiplied by the number of years of credited service.” It then says “final average monthly salary for a tier one member means one thirty-sixth of the total of the member’s highest annual salaries earned between July first of a calendar year and June thirtieth of the subsequent calendar year for any three years of service credit under the fund.” and, for a tier two member, “final average monthly salary for a tier two member means one sixtieth of the total of the member’s highest annual salaries earned between July first of a calendar year and June thirtieth of the subsequent calendar year for any five years of service credit under the fund.”

A computed example from an assumed $60,000 average of the five highest annual salaries and an assumed 25 years of service credit, not a TFFR figure: a Tier 2 member’s FAS is $60,000 divided by 12, a computed $5,000 a month. At the 2.0% multiplier, 2.0% of $5,000 for each of 25 years is a computed $2,500 a month as a single life annuity, before any option reduction.

The salary in these averages is the statute’s defined term (15-39.1-04(10)): it excludes payments for unused sick, personal or vacation leave and early retirement incentive or severance pay, and is capped each year at the Internal Revenue Code 401(a)(17)(B) compensation limit except for members whose participation began before July 1, 1996.

A second computed example, using that assumed $2,500, not a TFFR figure: a Tier 2 member whose unreduced date would be age 60 retires three whole years earlier. At 8% for each year the reduction is 3 times 8, a computed 24%, so the benefit is $2,500 times (100 minus 24) divided by 100, a computed $1,900 a month. The board’s own estimate decides the real figure.

The statute also sets a floor. 15-39.1-10(3) says: “Notwithstanding any other provision of this section, no member who retired on July 1, 1993, or after and is eligible to receive benefits under former chapter 15-39, chapter 15-39.1, or section 15-39.2-02, may receive benefits which are less than:” “Ten dollars per month per year of teaching to twenty-five years.” and “Fifteen dollars per month per year of teaching over twenty-five years.”

The election: single life, joint and survivor, or term certain

Each retiring member chooses an annuity option on the application. The handbook says: “The Single Life Annuity pays the highest monthly benefit.” “All optional plan amounts are determined by the benefit formula and an actuarial reduction calculation.” “Under all annuity options, members are guaranteed to receive no less than their Account Value (Member Contributions plus 6% interest).”

After retirement the survivor’s benefit follows the choice: “The survivor benefits the designated beneficiary receives, if any, are based on the plan the member selects at retirement.” For the 10-year option the survivor benefit is “Remainder of the 120 months of payments, if any”. The handbook prints no reduction for any option; the amounts come from an actuarial reduction, and the member’s Benefit Estimate shows them. See single-life versus joint-and-survivor pension for the trade-off.

A computed example from an assumed $2,000 reduced monthly benefit under the 50% option, not a TFFR figure: the survivor’s 50% is a computed $1,000 a month for life. A second computed example from an assumed $2,000 monthly benefit under the Ten-Year Term Certain and Life option, with an assumed death 48 months after retirement: 120 months minus 48 leaves a computed 72 payments, a computed $144,000 in total to the beneficiary.

What can be changed, who must consent, and the deadlines

Retirement is defined by the first payment: “For TFFR purposes, a member is considered to be retired after terminating their TFFR-covered employment and accepting their first monthly retirement benefit payment.” “If a member passes away before accepting a benefit payment, retirement has not occurred, and the benefit would not be payable.” The documents read do not call the annuity election irrevocable. The only change path described is tied to marriage: “Option Changes: After remarriage, a retiree may elect a new Joint and Survivor option with proof of good health and age; benefits are adjusted actuarially.” “Pop-Up Feature: For Joint and Survivor options, if the beneficiary dies first or a divorce grants sole ownership, the member’s benefit increases to the Single Life amount.”

The statute covers the beneficiary who dies first. 15-39.1-16(1)(a) says: “If the individual designated to receive the teacher’s reduced retirement allowance predeceases the teacher, the reduced retirement allowance must be converted to a single life retirement annuity under which benefit payments, if the individual designated died before July 1, 1989, must begin on July 1, 1989, or, if the individual designated dies on or after July 1, 1989, must begin on the first day of the month following the death of the individual designated.” Paragraph (1)(b) has the same conversion for the fifty percent option. The handbook’s divorce trigger is not in the chapter text read (a search of the chapter for the word divorce finds nothing; the nearest provision is the qualified domestic relations order section, 15-39.1-12.2). The chapter’s only use of the word irrevocable is the election to join the public employees retirement system in 15-39.1-09(3) and (4).

Spouses and beneficiaries limit the choice: “Spousal Consent: A married member’s spouse must consent to the selected option; otherwise, the 50% Joint and Survivor option applies.” See spousal consent to waive a joint and survivor annuity. Also: “Multiple Beneficiaries: Joint and Survivor options are not available if more than one beneficiary is named.” On naming several beneficiaries, the handbook also says “If more than one primary beneficiary is named, they are not eligible to receive a monthly lifetime annuity”.

The statute ties consent to a spouse who is the beneficiary. 15-39.1-16(2) says: “A member’s spouse, if designated as beneficiary, shall consent in writing to the member’s choice of benefit payment option for any benefit payments commencing after June 30, 1999.” It adds: “The spouse’s written consent must be witnessed by a notary or a plan representative.” and “If the spouse does not consent, or cannot be located, the member’s annuity benefit must be paid using option two, the fifty percent joint and survivor option.” For death benefits, 15-39.1-17(1) says: “If the member is married, the spouse of the member is the member’s primary beneficiary unless the spouse consents in writing to the member’s alternate primary beneficiary designation.” The chapter’s only rules on several beneficiaries are the death benefit rules in 15-39.1-17(2). The chapter text read states no bar on joint and survivor options for several beneficiaries, though its option rules in 15-39.1-16 speak of one designated beneficiary.

On timing: “Submit your application 60 to 90 days before your planned retirement date.” “Your retirement enrollment form will be prepared and sent to you for completion and notarization.”

The partial lump sum option

TFFR has a partial lump sum option (PLSO), not a full lump sum at retirement. The handbook says: “Available to members eligible for normal retirement.” “Provides a lump sum payment equal to 12 times the Single Life monthly benefit, in exchange for a reduced monthly annuity.” “The lump sum is paid when monthly payments begin.” “If the member selects a Joint and Survivor or Term Certain option, the monthly benefit is further reduced to cover the additional beneficiary.” “The taxable portion of the lump sum may be rolled over to an IRA or another eligible retirement plan.” On the application: “PLSO Option: a one-time lump sum payment provided in exchange for an actuarially reduced benefit. See your Benefit Estimate for PLSO numbers.”

The statute sets the conditions. N.D.C.C. 15-39.1-16(1)(e) says: “A member who is eligible for an unreduced service retirement annuity under section 15-39.1-10 and who retires after July 31, 2003, may make a one-time election to receive a portion of the retirement annuity paid in a lump sum distribution upon retirement, pursuant to rules adopted by the board.” Subparagraph (1) says: “This option is not available to disabled members or beneficiaries of deceased members. The partial lump sum distribution option may be elected only once by a member and may not be elected by a retiree.” Subparagraph (4) says: “Before a retiring member selects a partial lump sum distribution under this subdivision, the fund shall provide a written notice to the member of the amount by which the member’s annuity will be reduced because of the selection.”

A computed example from an assumed $2,500 single life monthly benefit, not a TFFR figure: 12 times $2,500 is a computed $30,000 paid when monthly payments begin, and the monthly annuity afterward is lower by an amount the documents read do not give. The pages read describe no deferred retirement option plan (DROP). For cash now against a monthly check, see pension lump sum versus monthly annuity break-even.

Leaving before retirement: keep the pension rights or take a refund

A vested member who leaves can wait for the pension, and the valuation describes who keeps one: “A Tier 1 member who terminates with 3 or more years of service credit and a Tier 2 member who terminates employment with 5 or more years of service credit and does not withdraw contributions”. A member who is not vested has one path: “If a member leaves employment and is not vested, the member will only be eligible for a lump sum refund of the teacher’s account value.”

The other path is a refund: “A member who terminates covered employment is eligible for a refund, aka a lump-sum distribution, of their account value.” “This consists of employee contributions paid plus 6% interest.” On interest: “Employee contributions earn interest at an annual rate of 6% which is compounded monthly (.5% per month).” “Employer contributions are not refundable to the member.”

What a refund costs: “A refund closes your account and all service credit earned to that point is forfeited.” “By selecting a refund, the member waives all rights to a lifetime annuity at retirement.” “If a Tier 1 member, the member also waives their Tier 1 membership status and, if they return to TFFR-covered employment, the member will become a Tier 2 member.” The statute says it this way in 15-39.1-15: “If the teacher returns to teach in covered employment after June 30, 2008, the teacher becomes a tier two member regardless of whether the teacher repurchases service credit earned while the teacher was a tier one member.” “Tier 1 and Tier 2 members may repurchase refunded service credit upon return to covered employment.” On the effect of a refund, 15-39.1-20 says: “The refund is in lieu of any other benefits to which the member may be entitled under the terms of this chapter, and by accepting the refund, the member is waiving any right to participate in the fund under the same provisions that existed at the time the refund was accepted regardless of whether the member later repurchases refunded service credit.” On a return to teaching, 15-39.1-15 says: “A teacher who has withdrawn from the fund as set forth in this chapter, by returning to teach in a public school or state institution of this state, may regain service credit for prior teaching by making the required payment. The required payment is the purchase cost on an actuarial equivalent basis.” The statute prices a repurchase at ““Interest“ as applied to member assessments is an annual rate of six percent compounded monthly and as applied to the repurchase of credit for withdrawn years is six percent compounded annually.” For the general framing see pension refund versus leaving it.

On timing, the handbook says: “Refunds are issued on the first working day of each month.” “There is a 120-day statutory waiting period from the last month of TFFR employment before a refund will be issued.”

The statute makes the 120 days waivable. 15-39.1-20 says: “When a member of the fund ceases to be eligible under the terms of this chapter to participate in the fund, the member may, after a period of one hundred twenty days, withdraw from the fund and is then entitled to receive a refund of assessments accumulated with interest.” It continues: “The one-hundred-twenty-day requirement may be waived by the board when it has evidence the teacher will not be returning to teach in North Dakota.”

How a refund is taxed and paid

The handbook says of the payout: “A refund may either be paid in a direct rollover to an IRA or another qualified plan or paid to the member.” “If the taxable portion of the refund is rolled over, no tax or penalty will be due, and no income tax will be withheld.” “If the refund is paid directly to the member, RIO is required to withhold federal income tax at 20% of the taxable portion of your refund.” “North Dakota state tax withholding is optional.” On the penalty: “If you separate from service before age 55 and receive a taxable refund payment before age 59 1⁄2, you may have to pay an extra 10% penalty calculated on IRS Form 5329 in addition to the regular income tax.”

A computed example from an assumed $10,000 taxable refund paid to the member, not a TFFR figure: 20% of $10,000 is a computed $2,000 withheld for federal tax, leaving a computed $8,000 in cash before any state tax or penalty. See 20% withholding on a pension lump sum. State treatment is at North Dakota retirement taxes and does North Dakota tax pensions. For a monthly pension, “Retirement benefits are taxable as ordinary income under federal and state law.”

Buying service credit

The handbook says: “Purchased service does not count toward vesting, except for refund or qualifying military service.” “Each type requires verification of service and is priced at the actuarial equivalent cost unless noted otherwise.” On air time: “Up to five years of service credit can be purchased once a member has five years of teaching service in TFFR.” “Purchases must be completed before retirement; partial payments result in prorated credit.” The statute is shorter. 15-39.1-24(12) says: “The amount of additional service eligible to be purchased under this section must be credited to the teacher when the teacher has made the required payment.” Paragraph (10) adds: “With the exception of military service, purchased service credit is not eligible for credit if the years claimed also qualify for retirement benefits from another retirement system.” The chapter text read has no sentence on prorated credit for partial payments; its only pro rata rule is the section 415 limit in 15-39.1-10.6. See the pension buyback calculator to set up the break-even.

Cost-of-living adjustments

Both documents say TFFR has no automatic COLA. The handbook: “The TFFR pension plan does not contain provisions for automatic cost of living adjustments to retirement benefit.” The valuation: “From time to time, TFFR has been amended to grant certain post-retirement benefit increases. However, TFFR has no automatic cost-of-living increase features.”

The statute lists past increases one at a time (15-39.1-10.1, 10.2, 10.4, 10.5 and 10.7 to 10.11, plus a one-time 2009 supplemental payment in 10.12), each for people receiving benefits on a stated date or retired before one, and the chapter text read has no section that ties an increase to each later year. The conditional adjustment for 2001 and 2002 in 15-39.1-10.11 reads: “This annual benefit adjustment is conditioned on an actuarial test performed annually by the board’s actuarial consultant to determine the actuarial adequacy of the statutory contribution rate.” It continues: “If the actuarial valuation indicates a shortfall between the actuarially determined benchmark contribution rate and the statutory rate, the board may reduce or suspend the conditional annual benefit adjustment.”

If a member dies before retirement

The options depend on vesting. The handbook lists, for a “Non-vested member (Tier 1 member with less than 3 years of service credit or a Tier 2 member with less than 5 years of service credit)”, “Refund of account value”. For a “Vested member (Tier 1 member with 3 or more years of service credit or a Tier 2 member with 5 or more years of service credit)”, it lists the refund and “Monthly annuity for life (not available if more than one beneficiary is named)”. In all cases, “a minimum payout equal to the member’s remaining account value balance is guaranteed”.

The statute splits the vested case by whether the member was eligible for unreduced benefits. 15-39.1-17(2)(b) says: “A lifetime monthly annuity effective on the first of the month following the month of the member’s death. The amount of the monthly annuity is equal to an amount that would have been paid to the beneficiary under a one hundred percent joint and survivor annuity without reduction for early retirement and using the disability option reduction factor.” That annuity is the one offered when the member was not eligible for unreduced benefits (paragraph (2)); for a member who was, paragraph (1) sets it at the 100% joint and survivor amount. In both cases the one beneficiary may take a lump sum of the member’s account value instead. For several beneficiaries, 15-39.1-17 says: “If the member dies and multiple beneficiaries are eligible for death benefits, the plan shall pay the member’s account value to the member’s beneficiaries.”

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 TFFR’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”. TFFR’s handbook describes the same 20% federal withholding on a refund paid to the member and offers a direct rollover as the alternative. 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.

Where the sources disagree

First, death before retirement for a member who is not vested. The handbook lists one option, “Refund of account value”. The valuation says: “Upon the death of a non-vested member, a refund of the member’s contributions and interest is paid.” It then says: “Upon the death of a non-vested member, the beneficiary may elect; the refund benefit, or a life annuity of the normal retirement benefit based on FAS and service as of the date of death with no reduction for the member’s age at death.” The handbook limits the monthly annuity to vested members, and the statute agrees with the handbook. N.D.C.C. 15-39.1-17 says: “If before retiring a nonvested member dies, the plan shall pay the member’s account value to the member’s beneficiary.” The valuation’s second sentence is not what the statute text read provides for a non-vested member.

Second, the unit of the benefit. The handbook calls the formula result a monthly benefit, while the valuation labels the same 2.00% of FAS times credited service an annual benefit and defines FAS as an annual average divided by 12. The examples here follow the handbook and treat it as monthly, and the statute does too: 15-39.1-10(2), quoted above, applies the 2% to a “final average monthly salary”.

Third, dates. The valuation reflects provisions as of July 1, 2025 and the handbook is dated 5/7/2026, so the handbook is the later document, and the law governs both.

What this page could not settle

• The pages read do not state how much any joint and survivor, term certain or partial lump sum option reduces a particular member’s monthly benefit.
• The pages read do not state that the annuity election is irrevocable once payments begin; they describe a change only after marriage or remarriage.
• The pages read do not state how an early retirement reduction treats a part of a year. The statute (15-39.1-12) says “per annum” and the chapter text has no rule for a part of a year; the only fractional rule about members is the fractional service credit in 15-39.1-27.
• The pages read do not describe a deferred retirement option plan (DROP) or a full lump sum payable at retirement.
• The pages read do not state whether any post-retirement benefit increase is planned.
• The Special Tax Notice on refunds and the application forms were not among the documents read. North Dakota Century Code chapter 15-39.1 was read on October 24, 2026 and is quoted above where it answers a point; the board’s administrative rules and any amendment after that text were not checked.
• Social Security, disability retirement and the return-to-work rules were not examined in depth.

Common mistakes

• Taking a refund without weighing that it closes the account, forfeits all service credit and waives the lifetime annuity.
• Naming more than one beneficiary and expecting a joint and survivor option; the handbook says those are not available.
• Expecting a cost of living increase; the plan has no automatic one.
• Having a refund paid to the member and expecting the full amount; 20% of the taxable portion is withheld unless it is rolled over.

Related on this site: North Dakota retirement taxes, does North Dakota tax pensions, North Dakota NDPERS retirement decisions, pension refund versus leaving it, single-life versus joint-and-survivor pension, 20% withholding on a pension lump sum, pension buyback calculator and spousal consent to waive a joint and survivor annuity.

Sources

• North Dakota Retirement and Investment Office, Teachers’ Fund for Retirement Member Handbook (dated 5/7/2026): https://www.rio.nd.gov/sites/www/files/documents/PDFs/TFFR/Publications/tffrmemberhandbook.pdf
• North Dakota Teachers’ Fund for Retirement, Actuarial Valuation Report as of July 1, 2025 (GRS, letter dated October 20, 2025): https://www.rio.nd.gov/sites/www/files/documents/PDFs/TFFR/Reports/valuationreportgrs2025.pdf
• North Dakota Century Code chapter 15-39.1, Teachers’ Fund for Retirement (ndlegis.gov): https://ndlegis.gov/cencode/t15c39-1.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 16, 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.