If you’re a public or state employee in California, it’s likely that your retirement benefits and pension plan are managed by CalPERS, the California Public Employees’ Retirement System. This system handles the pension and health benefits for over 1.6 million public employees, retirees and family members throughout California.
CalPERS manages the largest public pension fund in the entire U.S. and holds over $360 billion in total assets. It’s also known for the CalPERS effect—stocks that find their way onto the organization’s Focus List tend to perform much better than others, making it a global investment leader, recognized the world over as one of the most powerful shareholder bodies in the United States.
But how exactly does CalPERS work, and what does it mean that even with vast assets, it is currently underfunded? Let’s explore how CalPERS works, the kinds of benefits it offers, and what it means for you as a California public employee, retiree or family member.
How Does CalPERS Work?
CalPERS manages all benefits for California public employees and their families. It offers a benefit plan wherein your retirement benefits are based on a formula as opposed to contributing to a savings plan. Essentially, this is a pension plan that’s based on your years of service, your retirement age, and the final compensation you received over a defined period of employment.
But how does CalPERS work? The formula for CalPERS retirement can vary based on your classification—peace officers and firefighters are treated differently than safety workers or miscellaneous state employees. There are also three basic types of retirement under the program:
- Disability retirement: This is a program for those employees who develop an illness and injury that prevents them from being able to continue their usual duties.
- Industrial disability retirement: This program is for those safety workers or members whose agency contract grants this benefit. It also applies to workers who get a job-related injury or illness that prevents them from continuing work.
- Normal, or “Service” retirement: This is the standard pension benefit for California state workers.
How Disability Retirement Works
If you suffer an illness or injury which is disabling to the point where you can no longer perform your regular job duties, you may be eligible for disability retirement benefits. Your disability does not necessarily need to be directly related to your employment for eligibility.
If the disability is job-related and you are a peace officer, firefighter, industrial worker, or state safety worker, or an employee whose employer has contracted for industrial disability, however, you may be eligible for additional benefits. As soon as you believe that you’re unable to complete your job duties due to a disability that will last longer than six months, you should apply for benefits. Your employer may also file on your behalf.
This process can be somewhat intimidating and confusing, and as of April 2017 has a number of new mandates that make it even trickier to apply. You now have a duty to provide medical and personnel records, present evidence of ongoing disability, confirm your permanent date for retirement and a number of other new requirements.
How Much Can I Expect to Make?
Again, the individual pension for a CalPERS retiree is based on the level of employment, final compensation and years of service. On average, however, as of 2012, a state employee with 30 years of service would pull down about $45,841 a year on average, and a staff member with 43 years of service could earn a pension of $65,705 per year.
Eligibility and Vesting Requirements
In order to be eligible for benefits, you must be at least 52 years of age (as of 2013) and have a minimum of five years of full-time employment (CalPERS service credit). This is called “vesting.” There are some exceptions, such as those who have service with reciprocal employers. If you think your prior employer was reciprocal, you should contact CalPERS for additional information.
It’s also important to note that the five-year vesting requirement is in place for disability retirement as well as standard retirement. This can make it difficult to seek benefits if you become injured before your five-year period is up, though help is available for those who believe they should be entitled to benefits.
There are different accounting classifications for CalPERS employees that dictate their individual benefits and contribution. These break down to Tier One members, who contribute at 8% with monthly retirement benefits at a 2% age factor, and Tier Two members, who contribute only 1.5% and are calculated at a 1.25% age factor.
Family members are eligible for survivor benefits through the program. These range from a lump sum, up to 50% of the total monthly retirement benefit. Which level is received depend on the deceased employee’s selected annuity plan and their age when they passed. Spouses and children can collect these benefits.
Highest vs. Lowest Pensions
Over 20,000 retirees per year see six-figure pensions from the program, and the number is on the rise. Even more impactful, however, is the increasing number of pensions at $20,000 or below. In the three years between 2012 and 2015, this number increased by twelve times as many. The majority of low-end pensioners are school district employees who aren’t teachers, many part-timers. These pension benefits add up.
CalPERS and Divorce
Since CalPers is such a rich plan, it is almost always included in calculations around property and alimony settlements for its qualifying members. CalPERS pensions are typically deemed community property and are subject to division upon dissolution of a marriage or registered domestic partnership, or a legal separation. However, as with most retirement plans, there can be unique requirements to properly perfect and effectuate claims from a divorce order.
That’s why it can be best to seek the help of professionals like QDRO Masters at Willick Law Group to help guide through the complex process of dealing with claims on retirement benefits that are a part of divorce or property settlements.
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