Presenter 1: Welcome to the CalPERS Your Retirement Calculation video. Before we get to the main presentation, let’s take care of some housekeeping items. To provide you with a future reference, and make your note taking easier, we’ve provided a learning guide for this presentation. You’ll see the link to the learning guide in the YouTube description box. This video will stay posted here on YouTube, so you can come back and watch again if you need to. Please note that due the large number of participants, even though the chat feature is active, we won’t be able to respond to member questions during this video.
In today’s session we’ll discuss how your retirement allowance is calculated. This includes going over the three factors used in the calculation of your monthly benefit. We’ll then put it all together by showing you some example calculations. Your CalPERS pension is a defined benefit plan, which means that your pension is calculated using a formula and not by how much you’ve contributed to the system. There are three factors that make up this formula. The first factor is Service Credit which is your total years of service with all your CalPERS employers.
Second is the Benefit Factor which is the percentage of pay you’re entitled to for each year of service credit that you’ve earned. And third is the Final Compensation which is an average of your highest monthly pay rate. When you retire, we’ll multiply your years of Service Credit by your Benefit Factor, and then multiply that result by your Final Compensation which will give your Unmodified Allowance.
The Unmodified Allowance is what you’ve earned and the highest monthly amount you can receive when you retire. For more information on the unmodified allowance and the other retirement options available, read our publication, Planning Your Service Retirement, which is Publication 1. In the coming slides we’ll review each factor in more detail. So, let’s begin with the first factor, service credit. Service credit is earned during your time spent on the job at a CalPERS-covered employer. Service Credit is earned on a fiscal-year basis, July 1 to June 30. Your service credit earned is based on the manner in which you’re paid. If you’re paid on an hourly basis, it takes 1,720 hours to earn one full year of service credit. If you’re paid daily, it’s 215 days of fulltime work.
And if you’re paid monthly, it takes only 10 months fulltime within a fiscal year to earn your one year of service credit. If you earn less than this, you’re earning partial service credit. This is an example of how service credit is earned on a fiscal year basis for a member who’s paid on a monthly basis. July 1st is the beginning of the fiscal year. If you work full time in the month of July, you’ll earn one tenth of a year of service credit.
If you continue to work full time through the rest of the fiscal year, you’ll earn another tenth of a year for each full-time month worked until you get to the end of April, when you’ll have a year of service credit. Notice that you only have to work ten months full time to earn a full year of service credit. You can’t earn more than a year of service credit in a fiscal year so because you’ve earned a full year of service credit by the end of April, you won’t earn additional service credit in May and June. But most of us don’t start working on July 1st.You probably started working part-way through the fiscal year and may have noticed on your Annual Member Statement a fractional number of years. Something like 22.525 or 7.783. Let’s say in this example that you started working full time in the middle of November. Since you only worked half a month, you earned .05 of a year of service credit for that month. You then worked full time the rest of the fiscal year. Notice that because you didn’t have a full year of service credit at the end of April, you continued to earn service credit in May and June.
At the end of this first fiscal year, you have .750 of a year of service credit. If you continued to work full time then the next statement would read 1.750, then the one after that 2.750 and so on. So we’ve just covered how you earn CalPERS service credit, but did you know that there may be service credit that you’re eligible to purchase? We encourage you to make any eligible service credit purchases as early as possible because it may save you money and you may be able to pay it off prior to your retirement. We’re going to look at the three most common types of service credit purchases.
First is a Redeposit of Withdrawn Contributions. If you were previously a CalPERS member, left your CalPERS-covered employer, and took a refund of your contributions and interest, once you’ve come back into CalPERS membership you can redeposit these funds plus interest and restore those years of service credit. You may have worked for a CalPERS-covered employer in a position that did not qualify you for membership at the time. This may have been a permanent/intermittent, part-time, temporary, on-call, or seasonal position. Now that you’re a member, you may be able to purchase Service Prior to Membership. Additionally, if you served in active military service, you may be able to purchase up to four years of Military Service Credit. All State and School members, as well as members of Public Agencies that contract for this benefit may be eligible. You may have served in the military while employed by a CalPERS employer. If you are granted a military leave of absence and then return to CalPERS-covered employment, you may be eligible to have service credit for the time served on active military duty credited to your account at no cost. It’s important to check into this as soon as you return to work as this is not done automatically.
You must submit the Military Leave of Absence Request form along with your DD-214. There are also several less common types of service credit that may be purchased, for example a layoff, certain types of leaves of absences or time spent in the Peace Corps or AmericCorps*VISTA Service. If you’re considering purchasing service credit, you should review the appropriate publication which provides the types of service credit available, eligibility for each type, and what is needed to submit the request. The publications are A Guide to Your CalPERS Service Credit Purchase Options, Publication 12, or for military time, the Military Service Credit Options, Publication 15. These publications can be found on our website. If you believe you’re eligible to purchase service credit, you can apply for service credit purchase, through your myCalPERS account.
Notice there’s a service credit link. There you’ll find eligibility requirements for the different types of service credits you can purchase and links to additional forms and publications. As you go through the application process, you will see an estimate amount of the cost to purchase service credit. If we find you are eligible, we’ll send you the service credit election package. If you want to make the purchase, you must make the election by the expiration date provided. The next part of the calculation is your benefit factor. Each of you works under formulas that define a range of percentages used in your calculation at retirement. This percentage is called the Benefit Factor. The Benefit Factor defines the percentage of pay you’re entitled to for each year of service credit. Benefit factors start at age 50 or 52, depending on the formula you are under with your employer, and when you were hired. If you’ve worked for more than one CalPERS employer you may have more than one retirement formula. If that applies to you, we’ll calculate each separately based on the service credit earned under each formula and then add the totals together. If you’re unsure of your retirement formula, you can log in to your myCalPERS account. Select Retirement Summary from the Retirement dropdown tab, then scroll down until you see service credit history.
This section provides your retirement formulas, employers, and a breakdown of your service credit by employer. Your benefit factor increases with each quarter year of age or every three months, based on your birthday. We call these birthday quarters. For example, if your birthday is March 10, your birthday quarters would be June 10 for the quarter year, September 10 for the half year, and December 10 for the three-quarter year. You may want to pick a retirement date that coincides with one of your birthday quarters in order to receive a higher percentage of your final compensation. You must retire on or after your birthday or birthday quarter to receive an increased age factor.
Once you reach the maximum age for your formula, your age factor no longer increases, but you can increase your amount of service credit and rate of pay, which increases your monthly benefit when you retire. If you’re a state and local safety member under the 3% at 50 formula, you don’t need to worry about the birthday quarters because the percentage is fixed at 3%. Let’s take a look at an example of a formula chart, in this case, the 2% @ 62 formula. This formula applies to you if you were first hired into a miscellaneous position on or after January 1, 2013.
If you’re under a different formula, the numbers are a little different, but the concepts are still the same. The percentages you see within the chart are the range of benefit factors available to you. As you can see, on this chart, they start at age 52. This factor increases each quarter year from your birthday, up to a maximum age which in this example is age 67. Using the birthday quarters, we just went over, in this example, if your birthday is March 10 and you retired at age 62, the benefit factor would be two percent. Three months later on June 10, the formula increases to 2.025%. Then on September 10 it increases to 2.050%. If you were to retire on September 9, just one day before your birthday quarter increase, then instead of the higher factor of 2.050% being used, you would stay at the previous factor of 2.025%. To find the chart for your formula, visit our website at www.calpers.ca.gov and search for benefit factor charts. Now let’s go into the 3rd part of the calculation, Final Compensation. First, it’ll be helpful to define what compensation is, then we can talk about final compensation. Compensation is defined as payment to employees for service performed during normal work hours or for time during which employees use vacation, compensatory time off, sick leave or other types of leave.
Your employer may report items of special compensation in addition to your base pay rate. Special compensation may include payment for special skills, knowledge, abilities, work assignments, and so on. Check with your employer to find out what types of pay are reported for you. The final compensation used as part of your calculation is based on your highest average full-time monthly pay rate for either 12 or 36 consecutive months of employment, depending on your employer’s contract and when you first became a member. It is not based on your earnings. For example, if you work part-time, your earnings are lower, we still use your full-time equivalent pay rate to determine your final compensation although you are earning less service credit working part-time. Some Safety formulas have a cap on the percentage of final compensation that can be received.
The final compensation for school employees who work 10 or 11 months a year will be calculated based on the actual number of months worked within the period to be used. This averaging will lower the final compensation. Additionally, you may have time where you worked under the Public Employees’ Pension Reform Act, or PEPRA, and time where you didn’t, called classic membership. If this situation applies to you and you have service under both PEPRA and classic membership, then the highest final compensation earned under each formula will be used to calculate the time in that formula. Let’s look at an example of a final compensation calculation if you planned to retire on November 1. In this example, the final compensation period is 12 months. Final compensation starts on November 1 the previous year, 12 months prior to your retirement date.
For the first 6 months from November 1 to April 30, your pay rate was $4,400 per month, for a total of $26,400. On May 1, you received a raise so the last six months from May 1 to October 31, your pay rate is $4,600 per month, for a total of $27,600. We take the total amount of $54,000 and divide it by 12 months to arrive at the average final compensation of $4,500. If you’re under a 36-month final compensation, the averaging process works the same way. Now let’s talk about the final compensation adjustment. If you don’t contribute to Social Security, there is no adjustment.
Also, if you’re a school member or a new PEPRA member with a public agency or California State University, you are not subject to the final compensation adjustment. If, however, you contribute to Social Security while working under your CalPERS employer, then you’ll be subject to an adjustment to your final compensation, which is $133.33. The amount you contribute into CalPERS is not based on your full monthly earnings, there is an excluded amount. Because of this excluded amount, there is an adjustment made to your final compensation. The adjustment is the same no matter how much you earn. This is a one-time adjustment during the calculation process. It is not a monthly deduction to your retirement check. If you’re subject to the adjustment, it’s automatically calculated in your retirement estimates.
If we use the average final compensation of $4,500, we calculated in our earlier example and subtract the $133.33, this results in an adjusted final compensation of $4,366.67. This adjusted final compensation is then used to calculate your pension. If you have multiple CalPERS employers, you may have some service that is coordinated with Social Security and some that isn’t. The adjustment is applied ONLY to service that is coordinated with Social Security.
Now that we’ve looked at each of the factors that go into your pension calculation, let’s put it all together. First a quick review of what was just covered. Your retirement calculation is based on a formula. The three factors in this formula are your years of service credit, the benefit factor based on your age at retirement, and final compensation. Any increase in one or more of the three factors can mean a higher pension at retirement. To help us make a little more sense of this, let’s look at a retirement calculation with some numbers added in.
In this example, you work for an employer who contracts for 2% @ 62 retirement formula. You have 25 years of service credit, and the benefit factor is 2% based retiring at age 62. Multiply 25 years by 2% benefit factor which results in 50% final compensation. We then multiply that 50% with the adjusted final compensation of $4,366.67. This provides your monthly unmodified retirement benefit of $2,183.34 per month. So what would happen if you decide to wait another six months before you retire? You will have increased your service credit to 25.6 years and because you waited six months, your benefit factor increases to 2.050%.
We multiply these together to equal 52.4% of final compensation. You’ve stayed six months longer under your higher payrate which increased your final compensation to $4,566.67. When we multiply that with 52.4%, we get the unmodified allowance or your monthly retirement benefit of $2,396.59. By waiting six more months to retire, your unmodified allowance or pension increases by about $213 a month. Now that you know the basics of how your retirement is calculated, you’ll want to run your own numbers. The Retirement Estimate Calculator found in your myCalPERS account allows you to run various scenarios, such as if you took a higher paying position, or maybe you want to see the difference between retiring at age 62 or waiting until 65. You can run estimates for both scenarios and more using the calculator. And you can save your estimate scenarios for review in the future. If you have specific questions that weren’t answered, there are several ways you can contact us.
Log into your myCalPERS account and send a secure message. Schedule a virtual or in-person appointment. Select the appointment reason provided that best fits your needs. Another way to contact us is by phone. Our CalPERS representatives are available from 8-5 Monday through Friday. In most cases, they can assist you in a single call. Call us at 888 CalPERS (888-225-7377). This video will stay posted here on YouTube, so you can come back and catch what you might have missed. All our previous videos are also available on our YouTube channel. You’ll also have access to the link for the learning guide. Our presentation today was intended to provide you information on your retirement calculation. Please note that CalPERS is governed by the Public Employees’ Retirement Law. The information in this presentation is general. The Retirement Law is complex and subject to change. If there is a conflict between the law and the information presented in this presentation, all decisions will be based on the law. Later today, you’ll receive an email with a short evaluation. Please answer all the questions as it’s important for us to get your feedback to help us improve these presentations.
Thank you for taking time out of your day to attend this presentation and have a great day.