Hampshire County Retirement System

Separation from Service

Members who leave their job prior to retirement may be eligible to receive a refund of their annuity savings account. Members will receive a return of their accumulated total deductions plus accrued statutory interest provided they are not subject to pension forfeiture provisions due to a criminal conviction, or charged with misappropriation of funds.

Members who voluntarily terminate public service with at least ten years of creditable service will receive 100% of the regular interest that has accrued in their annuity savings account. Likewise, members who are involuntarily terminated will receive 100% of the regular interest that has accrued.

Members who have accrued less than ten years of creditable service will receive interest at the rate of 3% on their accumulated total deductions.

Please note that members who apply for a refund more than two years after the date of termination of service will receive only the interest accumulated during the two years immediately following termination of service.

Members may not request a refund if:

• they are already retired,
• they continue to be an active member of any Massachusetts contributory retirement system,
• they are on an official leave of absence,
• they are receiving workers’ compensation benefits
• they are seeking to be restored to their position, or
• they are accepting a position in the service of the Commonwealth or a political subdivision governed by G.L. c. 32.

Termination of membership

A refund of a member’s total accumulated deductions terminates a member’s rights in the retirement system. Members who later re-enter the retirement system will be considered new members and will be subject to any benefit changes in effect at the time of their re-employment.
A member with ten or more years of creditable service is vested and potentially eligible for a retirement allowance. By taking a withdrawal of their accumulated total deductions, they will lose any right to this retirement allowance.
Members who redeposit a refund and again become employed and active members must generally remain in active service for at least two consecutive years in order to retire.

Tax Implications of Taking Refund

Taking a refund of total accumulated deductions may subject members to certain tax consequences. A member’s annuity savings account is comprised of non-taxable and taxable portions. The non-taxable portion is equal to contributions made prior to January 12, 1988, plus any payments that were made to buy back previous creditable service. The taxable portion of the account is equal to the contributions that were made on or after January 12, 1988, plus accrued interest.

When processing a refund, staff will withhold 20% of the taxable contributions and interest for federal tax withholding if payment is made directly to the member. To defer tax withholding, members may directly rollover their funds into another tax deferred vehicle such as an Individual Retirement Account (IRA). In some cases, the IRS may apply a 10% early withdrawal penalty. Members are encouraged to consult an attorney or tax professional prior to withdrawing their funds.