Divorce is rarely simple, and dividing assets accumulated during a marriage can be particularly complex, especially when it comes to retirement plans. In California, the California Public Employees’ Retirement System (CalPERS) is a significant asset for many couples, and understanding how it’s handled in divorce proceedings is crucial. This article provides a comprehensive overview of CalPERS retirement plans and the options available for dividing them during divorce.
Key Takeaways
- CalPERS benefits accrued during marriage are community property and can be divided between spouses during a divorce.
- A QDRO is necessary to legally divide CalPERS benefits and must comply with California Family Code requirements.
- The joinder process notifies CalPERS of divorce proceedings and prevents unauthorized retirement fund access until a QDRO is in place.
- Model Orders provide frameworks for dividing CalPERS benefits depending on the member’s retirement status.
- Submitting a certified QDRO, divorce decree, and joinder to CalPERS is essential for benefit distribution.
CalPERS and Community Property
In California, all retirement benefits, including CalPERS, are considered community property. This means that any contributions made and service credit accrued during the marriage are subject to division in a divorce. Generally, a former spouse’s community property interest in a CalPERS pension can be up to 50%. It’s important to note that CalPERS will not release any pension benefits to either spouse until the community property claim is resolved (How Divorce Affects Your Pension Benefits). For active members, this means their pension and health benefits are put on hold during the divorce proceedings. For retirees, half of their monthly allowance may be withheld until the division of property is finalized. Furthermore, divorce impacts CalPERS health benefits coverage. You must remove your ex-spouse from your health plan as required by California Public Employees’ Retirement Law.
CalPERS Retirement Plan: An Overview
CalPERS is a defined benefit retirement plan (New Member State Guide) that provides a lifetime monthly income to eligible California public employees and retirees. Unlike a 401(k) or 457 plan, where benefits depend on contributions and investment performance, CalPERS benefits are calculated based on a formula. This formula considers factors like years of service credit, age at retirement, and final compensation. However, it’s important to understand that the specific formula and factors considered can vary based on the membership tier.
The minimum retirement age for service retirement for most members is 50 years with five years of service credit. There are different types of CalPERS retirement plans, including service retirement, disability retirement, and industrial disability retirement. The specific retirement formula and benefits vary based on factors like:
- Classification: This includes miscellaneous, safety, industrial, or peace officer/firefighter.
- Membership category: This includes state, school, or public agency employer.
- Contract provisions: The specific agreement between the employer and CalPERS.
Membership Categories and Formulas
CalPERS has different membership categories, primarily PEPRA and Classic, each with its own set of requirements and formulas.
| Membership Category | Hired Date | Retirement Formula | Highest Benefit Factor | Vesting | Minimum Retirement Age | Salary Calculation |
|---|---|---|---|---|---|---|
| PEPRA | On or after January 1, 2013 | 2% at 62 | 2.5% at 67+ | 5 years | 52 | Average highest 36 months |
| Classic (hired 2011-2012) | Between January 15, 2011 and December 31, 2012 | 2% at 60 | 2.418% at 63+ | 5 years | 50 | Average highest 36 months |
| Classic (hired before 2011) | Prior to January 11, 2011 | 2% at 55 | 2.5% at 63+ | 5 years | 50 | Average highest 12 months |
Benefit Factor
Your “benefit factor” is the percentage of your final compensation that you receive for each year of service credit. It’s determined by your age at retirement and your specific retirement formula. For example, if your formula is 2% at 55, you’ll receive 2% of your final compensation for each year of service if you retire at 55. This percentage increases for every quarter year you work beyond your minimum retirement age, up to a maximum age.
Dividing CalPERS in Divorce
To divide a CalPERS retirement plan in a divorce, CalPERS requires specific documentation:
- Written notification: This informs CalPERS of the separation, divorce, or termination of a domestic partnership.
- Marital settlement agreement: This clarifies whether a former spouse will receive a portion of the CalPERS benefits.
- Court order: This legally documents exactly how the CalPERS benefits will be divided. This is often achieved through a legal document called a Qualified Domestic Relations Order, or QDRO.
CalPERS is a neutral third party to the dissolution of marriage and cannot offer legal advice. Its role is to review court documents and divide the pension in compliance with the California Public Employees’ Retirement Law.
Notice of Adverse Interest
During divorce proceedings, it’s crucial to file a Notice of Adverse Interest with CalPERS. This notice informs CalPERS that a community property interest is being asserted against the member’s account. This protects the nonmember spouse’s potential claim to a portion of the retirement benefits and may prevent the member from making changes to the account or withdrawing funds before the division is finalized.
Joinder
“Joinder” is a legal procedure that formally joins CalPERS to the divorce proceedings, making the retirement plan a party to the case. This is a crucial step as it:
- Allows the nonmember spouse to make a claim against the CalPERS benefits.
- Enables the nonmember spouse to obtain necessary account information without a subpoena or the member’s written permission.
- Places a legal hold on the account, preventing the member from making changes, such as changing beneficiaries, before the division of property is finalized.
The QDRO Process
A QDRO is a legal document that instructs CalPERS to divide the retirement benefits according to the court’s order. It outlines the former spouse’s share, payment start date, and other relevant details. Obtaining a QDRO typically involves the following steps:
- Drafting the QDRO: An attorney specializing in family law and QDROs drafts the order, ensuring it meets CalPERS requirements and accurately reflects the divorce settlement.
- Court Approval: The drafted QDRO is submitted to the court handling the divorce case for approval.
- Serving CalPERS: Once approved by the court, the QDRO is served to CalPERS, officially notifying them of the division of benefits.
- Review by CalPERS: CalPERS reviews the QDRO to ensure it complies with their regulations and the California Public Employees’ Retirement Law.
- Acceptance and Implementation: If accepted, CalPERS implements the QDRO, establishing the former spouse’s right to a portion of the retirement benefits.
Options for Dividing CalPERS
Couples have several options when dividing a CalPERS pension in a divorce:
- Time-Rule Formula: This common method calculates the community property interest based on the length of the marriage relative to the total service credit. For example, if a member has 25 years of service credit and was married for 12 of those years, the former spouse’s community property interest would be 48% (12/25) of the pension benefit. This percentage is then typically divided in half, resulting in the former spouse receiving 24% of the member’s monthly pension benefit.
- Separate Accounts: The QDRO can establish a separate account for the former spouse, giving them independent control over their share of the benefits. This allows the former spouse to make decisions about when to start receiving benefits and what payment options to choose.
- Lump-Sum Payment: In some cases, the non-employee spouse may receive a lump-sum payment instead of a portion of the monthly pension. This option may be preferred if the former spouse needs immediate access to funds or wants to avoid ongoing involvement with the CalPERS plan.
- Offset with Other Assets: The CalPERS benefits can be offset against other marital assets, allowing one spouse to retain the full pension while the other receives a greater share of other assets. This can be a useful strategy for balancing the overall division of property in the divorce.
It’s important to highlight that a former spouse can access their share of CalPERS benefits even if the employee spouse has not yet retired. This provides financial independence and options for the former spouse regardless of the employee spouse’s retirement plans.
Segregated vs. Time Rule Division
Choosing between a segregated division and a time rule division depends on individual circumstances and preferences. Here’s a breakdown of who might benefit from each option:
Segregated Division:
- Individuals seeking simplicity and independence: A segregated account gives the former spouse complete control over their share of the benefits, allowing them to make independent decisions about when to start receiving payments and what payment options to choose.
- Former spouses in poor health: If the former spouse has health concerns and may need access to funds sooner, a segregated account allows them to start receiving benefits as early as age 50, regardless of the member’s retirement plans.
- Short marriages: When the marriage duration contributing to the CalPERS benefits is relatively short, a segregated division may be preferable as it provides a clear and immediate separation of assets.
Time Rule Division:
- Potential for higher benefits: If the member is expected to continue working and their salary increases significantly before retirement, a time rule division may result in a larger overall benefit for the former spouse.
- Member nearing retirement: If the member is close to retirement age, the former spouse may prefer a time rule division to start receiving a share of the monthly benefit soon after the member retires.
Ultimately, the best option for dividing a CalPERS pension depends on individual circumstances, financial goals, and the terms of the divorce settlement.
How to Get Started
CalPERS retirement plans are a significant asset in many California divorces. Understanding the basics of CalPERS, its treatment as community property, and the options for dividing it is essential for anyone going through this process. Remember that CalPERS is a defined benefit plan, offering a guaranteed lifetime income that is not subject to market fluctuations. The division of CalPERS benefits can be complex, and it’s crucial to seek legal advice from an experienced family law attorney who can guide you through the process and protect your interests.
For more information about CalPERS retirement plan division and to discuss your specific situation, contact PeacockQDROs to set up a free consultation.