The California Public Employees’ Retirement System (CalPERS) provides benefits to more than 1.6 million people. If you or your former spouse is a CalPERS member, you should be aware of how CalPERS benefits can be divided due to divorce or legal separation.
CalPERS Community Property and Governing Law
Just like other assets acquired during marriage, California community property law allows CalPERS benefits to be divided upon dissolution or legal separation of a marriage or registered domestic partnership. Unlike many private retirement plans, CalPERS is not bound by ERISA or Section 414(p) of the Internal Revenue Code; but is instead codified in the California Public Employee’s Retirement Law (PERL). CalPERS is a defined benefit plan and is divided by filing a Domestic Relations Order (DRO) with the court and providing a certified copy to CalPERS.
First Steps: Notify CalPERS of the Claim & Requesting Information on a Member’s Account
One of the first steps that the nonmember should take to protect his/her interest is to send written notice to CalPERS that he/she will be making a claim for his/her share of the community property in a member’s account. The written notice most commonly takes the form of a joinder, which is a legal document that joins CalPERS as a party to the dissolution or separation. This will place a community property hold on the member’s account that can only be removed by submitting a court order or through other formal, written procedures. This will ensure that CalPERS will release no benefits to an active member until the hold is removed, or will reduce a retired member’s monthly benefit by ½ until the hold is removed.
Legally, a member’s retirement file is confidential and can only be accessed by the member or his/her authorized representative. However, information can be released to the nonmember and his/her attorney if either i) the member provides written authorization for the release of information, ii) CalPERS has been joined as a party to the legal separation or dissolution, or iii) a valid subpoena duces tecum is served on CalPERS. Once CalPERS has a valid request for information, they will provide the following information:
- A statement of the member’s accumulated contributions and interest for the specific time period requested.
- A statement regarding the member’s years of service credit.
- A statement showing the member’s classification (i.e. State, local, or safety member) and the benefit formula applicable to the member.
- If the member is already retired, the plan will provide information about the option elected at retirement, the beneficiary, the amount of the gross monthly allowance, and details about any death benefit payable.
Methods of Division: Separation of Account or Time Rule Formula
There are two methods of division for a CalPERS account, i) Separation of Account or ii) Time Rule Formula. The Separation of Account method can only be used for members who are not yet retired. The Time Rule Formula can be used by both retired and non-retired members. Once a member is retired, rather than the time rule, a DRO can specify a flat dollar amount or percentage of the member’s monthly payments that should be payable to the nonmember spouse. The main differences between the two methods of division are summarized in the chart below:
|SEPARATION OF ACCOUNT METHOD||TIME RULE FORMULA|
|Basic method information||Allows the community property interest in a member’s pension to be separated into 2 accounts – one in the name of the member and one in the name of the nonmember spouse. Can only be used by active or inactive members, not retired members.||There will only be one account (in member’s name) and nonmember spouse receives a lifetime benefit equal to his or her community property interest.|
|How Division of Benefits is Calculated||The amount awarded to the nonmember spouse is usually 50% of the member’s accumulated contributions, interest, and associated service credit earned during the marriage. Nonmember’smonthly benefit will be calculated using member’s salary on the date of dissolution, the nonmember’s age at the date of retirement, and the amount of service credit awarded to the nonmember spouse.||CalPERS will calculate the service credit earned from the date of marriage to date of separation, and what percentage of the monthly benefit is payable to the former spouse as his/her community property interest. The calculation will use member’s final compensation at time of retirement.|
|Nonmember Spouse’s Benefit Commencement||Possible when both parties reach the minimum retirement age.||Nonmember spouse’s interest can only be paid by CalPERS at the time that benefits become payable (member’s retirement date or death).|
|Nonmember Spouse’s Payment Options||Monthly allowance, or withdrawal by nonmeber refund or rollover.||Monthly allowance. The DRO should also specify that CalPERS should pay the nonmember spouse “by separate warrant” – otherwise the member is responsible for paying the nonmember spouse each month.|
|Optional Settlement at Retirement||No restrictions on member’s election.Nonmember spouse can elect an option for his/her account and name beneficiaries.||Generally, a DRO states that a member must elect optional settlement 4 and name nonmember spouse as beneficiary to the extent of his/her community property interest. Parties should also negotiate about how the cost of the benefit is to be applied, i.e. against the member’s share, against the nonmember’s share, or equally.|
|Death Benefits||Member’s death does not affect Nonmember’s spouse’s separate account. Nonmember spouse can designate a beneficiary for a one-time lump sum death benefit.||Upon Member’s death Nonmember spouse receives his/her community property interest in any lump sum or other death benefits payable by the Plan, and any benefits required by the Option elected at retirement.Upon Nonmember’s death, his/her share can either i) stop and revert to the member or ii) be paid to Nonmember’s named beneficiaries.|
CalPERS Health Benefits and Divorce
Although health care can be provided under a CalPERS sponsored health plan, health benefits to a former spouse terminate on the last day of the month in which the marriage terminated. CalPERS Health benefits are not subject to a Domestic Relations Order or DRO.
Other Concerns: Elective Service Credit, Cost-of-Living Increases, Waiver of Benefits
It is important to address any elective service credit in the DRO. Elective service credit can be from service prior to membership, a redeposit of refunded contributions, any additional retirement service credit, or military service. If the Domestic Relations Order does not address elective service credit, later purchases of credit or deposits of credit will be treated as the member’s separate property interest.
Generally a DRO will provide that the nonmember’s interest will increase proportionately with any cost-of-living increase or similar increase. If this is not the parties’ intent, it should be addressed in their judgment or marital settlement agreement.
If it is the agreement of the parties that the nonmember spouse will forever waive his/her interest in all CalPERS benefits, a written Waiver of Community Property should be completed and given to the plan administrator or a court order or DRO should be filed that awards the entire CalPERS benefit to the Member.
Need Help With Your CalPERS DRO?
If you and your former spouse need assistance with dividing CalPERS benefits, you can email a knowledgeable QDRO lawyer at email@example.com or call 619-786-QDRO to get started today!
DISCLAIMER: Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Note that sending an e-mail to QDRO Helper does not create an attorney-client relationship, and none will be formed unless there is an express agreement between the firm and the individual.