Author Topic: Can someone explain how CalPERS works like I'm 5?  (Read 103156 times)

toga62

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Can someone explain how CalPERS works like I'm 5?
« on: September 10, 2014, 08:18:33 PM »
My GF recently got a job and was told she has to sign up for CalPERS.  Pensions have never been a thing on my radar, so I know almost nothing about them and everything I'm reading is talking about service credits, average pay, and years of service.  I was more confused by the 5% monthly contribution required, yet retirement benefit isn't based on total savings...

so can someone enlighten me? I've been reading pamphlets, going over their web site, and still feel like this whole thing has something off about it.

some questions:
  • Whats the point of being part of CalPERS if you plan on trying for early retirement?
  • There is a 5 year qualification requirement?  So if she left the job after 4 years would she loss all the 5% monthly contributions she was forced to provide?
  • I've seen some say you can withdraw your contribution after x years and then leaving, but how does that work if distribution has nothing to do with contribution and savings?
  • Where is that 5% of her monthly paycheck going?
  • Why do they force membership of CalPERS, but also offer other retirement plans like a 401K? Is one better than the other?

any insight would be a big help.  Their website is just going on and on as if I have a clue already and I can't seem to find any good baseline understanding.  If she is going to be stuck working this job for at least 5 years to be able to see any sort of return on what has been portrayed as a mandatory thing, then I want to ensure she knows what she is getting into.

Thanks!

Lasombra

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #1 on: September 10, 2014, 09:30:14 PM »
CalPERS is fantastic. It's maybe the strongest defined benefit pension left out there.

I have it through my work, and the way it's set up for me is like this:

- I contribute 7%, my employer contributes something like 9%. It's mandatory, but the portion that I contribute is mine regardless. In addition, I get a guaranteed 6% return on my portion each year. I think that is standard, but it may vary by employer or plan.

- The portion that my employer contributes goes into a pool that they use to pay pensioners. If you leave before vesting, or choose to cash out rather than take the defined benefit, you lose access to this. CalPERS itself is kind of a black box in terms of how and where they invest, at least to my knowledge, but they are healthy.

- When you leave, you can cash out your portion or let it continue to accrue the guaranteed 6%. If you leave before vesting, you might be forced to roll the balance over into something else, I'm not sure. But this is probably where the main benefit is for someone looking to retire early; the guaranteed return on this portion of your savings frees you up to be more aggressive elsewhere.

- You didn't ask, but as a public employee there's a good chance she'll have access to a 457 plan. If so, there's another benefit for the aspiring early retiree; it won't have an early withdrawal penalty like a 401(k) does.

Hope that helps some.

Another Reader

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #2 on: September 10, 2014, 09:49:11 PM »
CalPERS is the State of California pension system.  It also covers some local government agencies.  If your GF works for one of the covered agencies, she will be eligible for a pension if she stays long enough to become "vested."  If she leaves before she is vested, she gets her contributions back along with interest, but has no right to what her employer contributed on her behalf.

If she stays longer than 5 years (vested), interest is credited to her account every year based on the investment returns overall.  The credit is on both her contributions and her employer's contributions.  She can withdraw the total amount if she leaves, but in most cases it makes sense not to because the crediting rate is relatively high and it's guaranteed.

When she reaches the minimum retirement age, she can take an annuity.  She can wait several years and get a higher payment.  The annuity is not based on the contributions.  It's based on her average salary for the last two or three years of employment, how many years she participated in the system and her age when she decides to take the annuity.  There is a formula her employer adopted that gives her a percentage of that average salary.  The annuity is not indexed up before retirement.  She would get a COLA once she takes the pension. 

The system estimates the likely cost of the annuity and the employee and employer contributions are adjusted as the contributions are paid in based on investment performance and actuarial calculations.  The money GF pays in and the employer pays in is lumped together with all the other money and invested.  In the last 15 or 20 years, CalPERS moved away from equities into real estate and more exotic investments to improve investment performance.  That has not always worked out well.  When investments don't perform, CalPERS ups the contributions to remain adequately funded.  Historically, the employer agency had to pick up a lot of the increases because of labor contracts.

The point of staying in CalPERS is to have an annuity with a COLA when you hit retirement age.  That reduces the amount of assets you need overall, because some of your future income will be from CalPERS assets instead.  You may opt for a higher withdrawal rate earlier because of the annuity.  As pension annuities go, this is a really good one, because you are guaranteed the crediting rate and you get a COLA.

When I worked for a CalPERS agency, we also had a 457 plan.  457 plans are a gift to the early retiree.  They are deferred compensation plans and you can withdraw from them without penalty before age 59 1/2.  A 401k plan is another retirement savings vehicle that defers taxes.  You can convert it to an IRA when you leave and apply the usual strategies to get the IRA money before age 59 1/2.

Hope this helps.

dragoncar

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #3 on: September 10, 2014, 10:35:22 PM »
Good questions, I'm interested too.  But I'd like to reiterate the best question: if you want to retire in 5-10 years, does it make sense to participate, or do you even have a choice?  Can you increase your contributions?

toga62

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #4 on: September 11, 2014, 07:28:33 PM »
Thanks everyone! some very helpful information here. :)

Another Reader

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #5 on: September 11, 2014, 07:44:23 PM »
Defined benefit pension plans are rigidly structured so the contributions are fixed by contract between the employer and CalPERS.  The employer then negotiates with the employee union about how the cost is split.  There is no choice about participating.  I think it makes good sense to participate and leave your money on the system if you are vested when you sever your employment.  The crediting rate is guaranteed and the annuity has a COLA.  Many of the negotiated pensions award a high amount per year of service.  I'm collecting a nice sum for a job I left over 20 years ago.

Retirement is comprised of multiple buckets of money and multiple streams of income that change over time.  One bucket empties, the spigot opens on another.  The younger you are when you retire, the more important it is to pay attention to future income streams, even if they are individually small.  Pensions and Social Security can actually add up to a lot of your necessary income when you are older, and your SWR as a younger person may be a little more liberal as a result.

briandougherty

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #6 on: September 11, 2014, 07:57:26 PM »
Good questions, I'm interested too.  But I'd like to reiterate the best question: if you want to retire in 5-10 years, does it make sense to participate, or do you even have a choice?  Can you increase your contributions?

They way I see it, it's great. Working 5 years with a 2.5 multiplier at $65,000 final average gets you almost $10,000 at retirement age. Add $10,000 from social security and you're basically at my FI goal for each of us. If we both had pensions and social security expectations like that then we really wouldn't have to worry too much about our money lasting beyond age 67.  It's a diversification of sorts with some legal protection and some predictability that can complement an investment portfolio.

makinbutter

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #7 on: September 11, 2014, 08:25:51 PM »
Good questions, I'm interested too.  But I'd like to reiterate the best question: if you want to retire in 5-10 years, does it make sense to participate, or do you even have a choice?  Can you increase your contributions?

They way I see it, it's great. Working 5 years with a 2.5 multiplier at $65,000 final average gets you almost $10,000 at retirement age. Add $10,000 from social security and you're basically at my FI goal for each of us. If we both had pensions and social security expectations like that then we really wouldn't have to worry too much about our money lasting beyond age 67.  It's a diversification of sorts with some legal protection and some predictability that can complement an investment portfolio.

Help me understand this, Brian - you get 5 x 2.5% x 65000, or $8125... but the way I understand the system is that number will NOT be inflation adjusted.  Thus, you're not getting "almost $10,000 at retirement age," you're getting $8125 at retirement age... which will have been slammed by inflation.  Assuming a modest 2.5% inflation over 30 years, that $8,125 will basically be halved, resulting in an inflation adjusted 4k/year.  It isn't chump change, to be sure, but it's quite far from hitting your FI goal :(

For the pension to have a meaningful impact on your bottom line, you'd have to either work more years or work closer to your expected retirement age, such that your "high final average" salary has also tracked up with inflation, so the pension will kick in more as a result.

Thoughts?  Am I understanding this wrong?

briandougherty

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #8 on: September 11, 2014, 08:47:48 PM »
Good questions, I'm interested too.  But I'd like to reiterate the best question: if you want to retire in 5-10 years, does it make sense to participate, or do you even have a choice?  Can you increase your contributions?

They way I see it, it's great. Working 5 years with a 2.5 multiplier at $65,000 final average gets you almost $10,000 at retirement age. Add $10,000 from social security and you're basically at my FI goal for each of us. If we both had pensions and social security expectations like that then we really wouldn't have to worry too much about our money lasting beyond age 67.  It's a diversification of sorts with some legal protection and some predictability that can complement an investment portfolio.

Help me understand this, Brian - you get 5 x 2.5% x 65000, or $8125... but the way I understand the system is that number will NOT be inflation adjusted.  Thus, you're not getting "almost $10,000 at retirement age," you're getting $8125 at retirement age... which will have been slammed by inflation.  Assuming a modest 2.5% inflation over 30 years, that $8,125 will basically be halved, resulting in an inflation adjusted 4k/year.  It isn't chump change, to be sure, but it's quite far from hitting your FI goal :(

For the pension to have a meaningful impact on your bottom line, you'd have to either work more years or work closer to your expected retirement age, such that your "high final average" salary has also tracked up with inflation, so the pension will kick in more as a result.

Thoughts?  Am I understanding this wrong?

I guess it depends how cost of living adjustments are given. I assumed some systems worked like Social Security on an index that adjusts up past income. It obviously is a lot less beneficial if it doesn't.

Another Reader

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #9 on: September 11, 2014, 09:09:05 PM »
No, it does not index up the wage base.  The annuity does increase if you take it later.  You do receive COLAs once you take the annuity.  The COLA convinced me to take it at an earlier age so I could collect for a much longer time and get the COLA.  I lost less because of taking it at an early age.

wileyish

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #10 on: September 11, 2014, 09:51:51 PM »
Those who participate in CalPERS do not contribute to Social Security. So think of CalPERS as a replacement to SS.

The benefit calculation differs depending on the agency (cops and firefighters get better options, for instance). Generally the rule is 2% at age 55, though you can start drawing at age 50 with a lower rate. Here is the breakdown for my agency: https://www.calpers.ca.gov/eip-docs/member/retirement/service-retire/benefit-charts/pub-6-2percent-55.pdf

The formula is:

(Service Credit (years employed) X Benefit Factor (age at which you start withdrawing) X Highest Annual Salary)/12 = Monthly Payout

After 5 years of employment the employee is vested, meaning they are guaranteed the formula above regardless of when the employee separates from service. One could take a lump some payout upon separation, but most people choose the safe pipeline of lifetime income. Your GF won’t be able to tap into the safe monthly payout until she hits the designated age though.

This is where the 457 shines (and I think it is available to all CalPERS employees). This huggable dude is a boon for the early retiree. It’s like a 401k, but there are no age limits on withdrawing from it. This can be used as a bridge between RE and the pension.

A couple thoughts to consider:

  -If she hates the job she should start looking elsewhere. Once vested, there is a huge sunk cost mentality that starts to wobble around the brain (and the golden handcuffs start to get tighter and tighter, especially if her salary is increasing along the way).

  -The lifetime health care benefits that CalPERS dangles in front of its employees are only available if one officially retires (and starts withdrawing from the pension) within 30 days of separating from service. This is a great benefit for the regular Joe, but if one plans on leaving before the age of 50…not so much. So factor in healthcare costs if she plans on leaving before the minimum retirement age.

Ok, too much for a 5 year old, but hopefully this makes sense. :)

Spartana

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #11 on: September 12, 2014, 12:35:28 AM »
Those who participate in CalPERS do not contribute to Social Security. So think of CalPERS as a replacement to SS.

The benefit calculation differs depending on the agency (cops and firefighters get better options, for instance). Generally the rule is 2% at age 55, though you can start drawing at age 50 with a lower rate. Here is the breakdown for my agency: https://www.calpers.ca.gov/eip-docs/member/retirement/service-retire/benefit-charts/pub-6-2percent-55.pdf

 
Public safety employees (like me) were able to start collecting benefits at age 50. Most other groups generally could collect benefits starting at age 55.  However, I believe they passed an initiative and they changed the pension rules for any new hires to bring it more inline with SS. I believe the new retirement age went from 50 to  57 for public safety employees (law enforcement, firefighters, etc...) and from 55 to 67 for others. There are also more cost sharing towards the pension as well as retiree medical. Not sure of that but the OP's GF is to be a new hire she should check out just whatCalPers plan she will be on.

As for SS, also be aware that employees still contribute towards Medicare and some agencies also contribute towards SS benefits as well as CalPers. And if your company didn't but you are qualified to receive SS from another job, that your SS benefit will be reduced by 2/3rd the amount of you CalPers pension. Not sure how it all works (ask me in a dozen years or so!) but that's what I've read.

I personally love CalPers. It allowed me to add some of my military time, as well as time fromanother government job,  as service credit for extra years, It allows me to get a pension at age 50, and I contributed the max to my 457 which I was able to begin making withdrawal on once I left my company 8 years before I would be eligible to begin collecting my pension. Good deal if you ask me. 

Here's a site I found and a little blurb from it:

http://www.ai-cio.com/channel/REGULATION,_LEGAL/California_Passes_Pension_Reform_Bill.html

The legislation, which takes effect in January, stipulates that new public employees must pay for at least half of their pensions, and grants local governments the power to raise employee contributions. Under the reformed rules, the retirement age for new state, county and municipal workers rises from 55 to 67 for general employees, and 50 to 57 for police and firefighters.
« Last Edit: September 12, 2014, 12:55:17 AM by Spartana »

coffeehound

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #12 on: September 28, 2014, 12:21:47 AM »
Other things to know about CalPERS -
1.  Credit transfers.  If your GF works for one CalPERS agency for 5 years, then moves to another job, then goes back to an agency that uses CalPERS, her credit for 'time served' transfers.

2.  If your GF leaves her CalPERS gig and starts a job at a UC within 30 days, she's eligible for reciprocity.  This means that, if she retires from both systems on the same day, they'll use the same avg highest salary to compute her pension payment.

3.  There used to be/may still be other advantages to the system - my pension benefits went up after 10 years of service.

Another Reader

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #13 on: September 28, 2014, 08:08:01 AM »
Much of what wileyish said is not applicable to most participating local government agencies.  Almost all now require you to participate in Social Security.  The retirement formula varies as well.  For my agency in the 1980's and most of the 1990's, it was 2 percent for each year of service at 55, based on the average of the three highest salary years.  In the late 1990's, when the public pension plans were actuarially overfunded, the agency bumped the retirement up to 2 percent at 50 and 2.5 percent at 55 or later.  Vesting can vary as well.  Five years is common, but again, it's up to the agency.

Most if not all agencies that use CalPERS for their pension plan also have 457 plans.  The plan providers differ among agencies.

Reciprocity extends to many California public pension systems outside of CalPERS, if the pension plans agree.  Reciprocity between retirement systems and internally within CalPERS systems is very helpful, as you are treated as if you worked for one agency for purposes of calculating your highest year(s).  The time limit for changing jobs is longer 30 days IIRC.  It may vary, but I am not familiar with the provisions. 

Cassie

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #14 on: September 28, 2014, 01:21:56 PM »
It is smart to leave the $ sit once she is vested so eventually she will get a pension.  I have one from Nevada that is similar & well funded & does not pay into SS.  However, eventually I will get some of my SS -not all-from working other jobs.  You do take a big hit though but still a better deal then just SS.  I do not see it as golden handcuffs.  I see it as something she can look forward to receiving-an additional income stream that allows you to not have to save up as large a stache to leave work. 

fishnfool

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #15 on: June 07, 2015, 12:24:50 PM »
Yeah I know this thread is almost a year old but thought I'd bring it back and update a little of the CalPers info.

Most non-safety public agencies now offer the tier 3,  2% at 62 years retirement formula. It started last year after they went from the golden 2% at 55, then to tier 2, 2% at 60 in 2013. It is still a great defined benefit plan no matter what tier you're on IMO.

Most of the public safety agencies are now offering tier 3 which is 2.7% at 57 years of age.

Every public agency has their own contract with their employee union and every contract is different as to what percentage a employee will have to contribute for their CalPers retirement plan.  For instance I am on the 2% at 55 plan and our current contract requires us to pay 9.25% towards our CalPers.

The standard is 7% from the employee and 7% from the employer but more cities and counties are asking for more from the employee in every new contract to keep their retirement plans solvent........ No surprise there! 


ShoulderThingThatGoesUp

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #16 on: June 08, 2015, 05:37:20 AM »
The danger is that pension funds are easy to underfund and at some point the taxpayers may decide that the winner of budget musical chairs is not former public servants asking to be paid for work they're no longer doing.

beltim

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #17 on: June 08, 2015, 06:43:42 AM »
The danger is that pension funds are easy to underfund and at some point the taxpayers may decide that the winner of budget musical chairs is not former public servants asking to be paid for work they're no longer doing. at the rate and times promised in their contracts.

Fixed that for you.

beltim

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #18 on: June 08, 2015, 06:50:59 AM »
And if your company didn't but you are qualified to receive SS from another job, that your SS benefit will be reduced by 2/3rd the amount of you CalPers pension.

This is a very old thread indeed, but since it's been revived, I thought I might as well correct this.  The maximum amount a Social Security benefit can be reduced because of receiving a pension from a job that did not pay into Social Security (like a CalPers pension) is about $400 per month.  I don't know where Spartana got 2/3 from, because that's not right, but you can see a full explanation at http://www.ssa.gov/pubs/EN-05-10045.pdf

Also, when did Spartana become a guest?  She'll be missed.

ShoulderThingThatGoesUp

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #19 on: June 08, 2015, 06:57:07 AM »
The danger is that pension funds are easy to underfund and at some point the taxpayers may decide that the winner of budget musical chairs is not former public servants asking to be paid for work they're no longer doing. at the rate and times promised in their contracts.

Fixed that for you.

Both are true. When the choice comes down to paying retirees or maintaining sewage treatment plants so rivers aren't full of shit, who do you think is going to win? I'm not saying it's right, but governments have gotten themselves into an impossible situation.

beltim

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #20 on: June 08, 2015, 07:07:13 AM »
The danger is that pension funds are easy to underfund and at some point the taxpayers may decide that the winner of budget musical chairs is not former public servants asking to be paid for work they're no longer doing. at the rate and times promised in their contracts.

Fixed that for you.

Both are true. When the choice comes down to paying retirees or maintaining sewage treatment plants so rivers aren't full of shit, who do you think is going to win? I'm not saying it's right, but governments have gotten themselves into an impossible situation.

That's a reasonable point.  I may have put a bit too much snark on the previous post.  That said, the cases that have gone through the courts have generally ruled that benefits already earned aren't subject to reduction: see for example Illinois (http://www.chicagotribune.com/news/local/politics/ct-illinois-pension-law-court-ruling-20150508-story.html#page=1) and New Jersey (http://www.nj.com/politics/index.ssf/2015/02/judge_rules_christie_must_make_15b_pension_payment.html - not exactly the same but similar reasoning).

This of course doesn't apply to cases where workers have voluntarily reduced pensions or when the city has declared bankruptcy, like Detroit.

ShoulderThingThatGoesUp

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #21 on: June 08, 2015, 07:23:04 AM »
The danger is that pension funds are easy to underfund and at some point the taxpayers may decide that the winner of budget musical chairs is not former public servants asking to be paid for work they're no longer doing. at the rate and times promised in their contracts.

Fixed that for you.

Both are true. When the choice comes down to paying retirees or maintaining sewage treatment plants so rivers aren't full of shit, who do you think is going to win? I'm not saying it's right, but governments have gotten themselves into an impossible situation.

That's a reasonable point.  I may have put a bit too much snark on the previous post.  That said, the cases that have gone through the courts have generally ruled that benefits already earned aren't subject to reduction: see for example Illinois (http://www.chicagotribune.com/news/local/politics/ct-illinois-pension-law-court-ruling-20150508-story.html#page=1) and New Jersey (http://www.nj.com/politics/index.ssf/2015/02/judge_rules_christie_must_make_15b_pension_payment.html - not exactly the same but similar reasoning).

This of course doesn't apply to cases where workers have voluntarily reduced pensions or when the city has declared bankruptcy, like Detroit.

And the governments should be held to the deal they made, you'd think. But it gets tough when you have school districts around where I live that are laying off teachers in order to pay for the pensions of retired teachers, and these are frequently impoverished districts that really can't raise taxes. I suspect that in the end there will be a federal bailout of many of these and public pensions will be eliminated going forward (Pennsylvania already tries to push governments to get rid of defined-benefit plans) because it's abundantly clear that elected officials and public unions just can't be trusted to work in the best interests of constituents and employees with them long-term.

beltim

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #22 on: June 08, 2015, 08:18:25 AM »
I'd feel worse if those districts hadn't paid below-market tax rates for the last generation or two instead of properly funding pensions as they went - they way good pension systems do. Massachusetts pays an equivalent of 3% of employee salary to pay for its pensions, comparable to a mediocre 401k contribution 

ShoulderThingThatGoesUp

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #23 on: June 08, 2015, 08:50:26 AM »
I don't feel bad for the politicians, I feel bad for the kids.

fishnfool

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #24 on: June 08, 2015, 11:59:22 AM »
With over $300 Billion in assets I don't see Calpers going away for anyone. But it will be active members (current workers) who will be contributing me $ to keep their future retirements funded.

The average Calpers pension is @ $2k. Not a lot of money if you don't have any SS benefit coming.

The first 11 to 12 years you're retired you are drawing down your bucket (the money you put into the plan). Hopefully you live long enough to get a little out of their bucket!

Smokeydave

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #25 on: June 08, 2015, 08:33:36 PM »
Am I the only one who thought this was going to be about Brakes?  Calipers?

beltim

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #26 on: June 08, 2015, 09:10:33 PM »
And if your company didn't but you are qualified to receive SS from another job, that your SS benefit will be reduced by 2/3rd the amount of you CalPers pension.

This is a very old thread indeed, but since it's been revived, I thought I might as well correct this.  The maximum amount a Social Security benefit can be reduced because of receiving a pension from a job that did not pay into Social Security (like a CalPers pension) is about $400 per month.  I don't know where Spartana got 2/3 from, because that's not right, but you can see a full explanation at http://www.ssa.gov/pubs/EN-05-10045.pdf

Also, when did Spartana become a guest?  She'll be missed.
Ha! Forgot I was once Spartana with a capital S now just lowly spartana with a lower case s (accidentally cancelled my membership here and re-did it long ago).

Well the info I got  came from the SS admin (last paragraph I added to this post is basicly what I read). Maybe I'm wrong (and that would be nice) as I worked in jobs that paid into SS longer then I did with my CalPers pension and would hate to get nothing or very little in SS for those years. OK here's what I found from SS: http://www.socialsecurity.gov/policy/docs/ssb/v74n3/v74n3p55.html

Plus this which may be just for widows/widowers and not everyone with a government pension that didn't pay into SS.

"How much will my Social Security benefits be reduced? Your Social Security benefits will be reduced by two-thirds of your government pension. In other words, if you get a monthly civil service pension of $600, two-thirds of that, or $400, must be deducted from your Social Security benefits. For example, if you are eligible for a $500 spouse’s, widow’s or widower’s benefit from Social Security, you will receive $100 per month from Social Security ($500 – $400 = $100). If you take your government pension annuity in a lump sum, Social Security still will calculate the reduction as if you chose to get monthly benefit payments from your government job."

Ah, I see.  The paragraph you're quoting only applies to Social Security benefits earned as a spouse, not on your own.  Social Security benefits based on your own earnings history can only be reduced by a maximum of $400 per month.

Also, I'm glad you're not gone!

rmendpara

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #27 on: June 09, 2015, 10:09:28 AM »
Great summaries above.

I'll just add the Calpers is a juggernaut in the institutional investing space. We always seem to find them as a competitor on the biggest investments in the alternative space, and even public stock/bond markets.

Jerks. :)

dragoncar

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #28 on: June 09, 2015, 12:14:02 PM »
Great summaries above.

I'll just add the Calpers is a juggernaut in the institutional investing space. We always seem to find them as a competitor on the biggest investments in the alternative space, and even public stock/bond markets.

Jerks. :)

Thanks for the bump and the info above!  As to what CalPers invests in, apparently California real estate speculation:

http://www.modbee.com/homes/article3126842.html

I'm still not sure it would make sense to leave funds after separation.  Whether or not it makes sense is almost completely dependent on what you think the inflation outlook over the next 30 years will be!

Another Reader

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #29 on: June 09, 2015, 12:40:41 PM »
I dunno.  If the crediting rate is still 7 percent as it was while my money was there, I would likely leave it either way.

dragoncar

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #30 on: November 23, 2015, 03:39:15 PM »
Great summaries above.

I'll just add the Calpers is a juggernaut in the institutional investing space. We always seem to find them as a competitor on the biggest investments in the alternative space, and even public stock/bond markets.

Jerks. :)

Thanks for the bump and the info above!  As to what CalPers invests in, apparently California real estate speculation:

http://www.modbee.com/homes/article3126842.html

I'm still not sure it would make sense to leave funds after separation.  Whether or not it makes sense is almost completely dependent on what you think the inflation outlook over the next 30 years will be!

Please note that what you quote from is an article from 2010 and it is 2015.  CALPERS is not the only fund to have been hurt by RE investments around 2009/10.  Even MMM members advise holding real estate in addition to equities.   As expected the California bay area market has indeed improved and I would be curious what that holding is now worth and if they took advantage of the downturn to manage it properly (perhaps buying out a someone without staying power or taking control).

Anyway, an organization to follow if you are receiving a benefit from them for sure.

For the curious, a more balanced perspective:
https://en.wikipedia.org/wiki/Mountain_House,_San_Joaquin_County,_California

MH shill has issues.  From a recent SacBee story on a water shortage there :"The investment collapsed when the housing market fell apart. In 2010, CalPERS valued its Mountain House investment at $90 million. At one point in late 2008, some 89 percent of the home mortgages in Mountain House were underwater – that is, the owners owed more than their homes were worth. No city in America had a higher percentage.

Since then, housing values have recovered, and many homes are now selling in the $400,000-to-$500,000 range. Last summer, CalPERS said its Mountain House investment was now worth $280 million, and pension fund officials gleefully participated in the ribbon-cutting of the community’s first high school.

Read more here: http://www.sacbee.com/news/state/california/water-and-drought/article25197418.html#storylink=cpy"

So has CalPERS significantly divested their RE holdings?  If not, my answer is still correct

robartsd

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #31 on: November 23, 2015, 05:35:39 PM »
CalPERS is a defined benefit plan. Employee benefits are contractually guaranteed - ultimately the State of California is on the hook for any bad risks CalPERS makes, not the member employees (of course CalPERS employees could still be held liable for white collar crimes they personally commit).

dragoncar

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #32 on: November 24, 2015, 12:17:33 AM »
CalPERS is a defined benefit plan. Employee benefits are contractually guaranteed - ultimately the State of California is on the hook for any bad risks CalPERS makes, not the member employees (of course CalPERS employees could still be held liable for white collar crimes they personally commit).

ever heard of a bail-in?

robartsd

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #33 on: November 24, 2015, 09:39:26 AM »
Defined benefit plans were once common in both the public and private sectors. Generally private sector has largely moved the risk (and some potential reward) to the individuals; but public sector jobs across the country tend to still have defined benefit retirement programs.

dragoncar

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #34 on: July 28, 2020, 04:02:29 AM »
It's been a few years and my opinion has changed.  In this low rate environment, earning a ~7% savings rate is like having a pretty sweet bond position.  So I'd leave the money to earn interest, at least until the financial outlook starts to look dire or they lower the assumed rate of return.  Then roll it over to an IRA.

Unfortunately, the pension itself will be mostly useless to early retirees since the payout will be based on earnings in today's dollars.  Unless there is extremely low inflation until pension age.  Would be a good deflation hedge as well, but pretty sure that would make the pension insolvent.

Good questions, I'm interested too.  But I'd like to reiterate the best question: if you want to retire in 5-10 years, does it make sense to participate, or do you even have a choice?  Can you increase your contributions?

So to finally answer my own question, I think it does make sense to participate, and no you don't have a choice and can't increase contributions.  So don't really sweat it but possibly reduce bond holdings to compensate.  I almost wish they would increase the employee contribution to increase pre-tax deductions.
« Last Edit: July 28, 2020, 04:06:18 AM by dragoncar »

Sanitary Engineer

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #35 on: July 28, 2020, 05:04:37 AM »
I'm not in CalPERS, but I am working toward a defined benefit pension.  I am looking at it like a heavily subsidized loan from my employer for specifically buying an annuity. 

Currently my plan is to retire after 15 years of service.  My yearly contribution to the pension is about $1,780
After 15 years I'll have contributed maybe $26,700
I can take dispersement at age 55 of approximately $1,500/month
An annuity that provides this income at age 55 would cost me about $168,000 today

So it seems like a pretty huge benefit to an early retiree.

dragoncar

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Re: Can someone explain how CalPERS works like I'm 5?
« Reply #36 on: July 28, 2020, 02:25:45 PM »
I'm not in CalPERS, but I am working toward a defined benefit pension.  I am looking at it like a heavily subsidized loan from my employer for specifically buying an annuity. 

Currently my plan is to retire after 15 years of service.  My yearly contribution to the pension is about $1,780
After 15 years I'll have contributed maybe $26,700
I can take dispersement at age 55 of approximately $1,500/month
An annuity that provides this income at age 55 would cost me about $168,000 today

So it seems like a pretty huge benefit to an early retiree.

I think that level of employee contribution is extremely rare these days