If you’re a California Public Employees’ Pension Reform Act (PEPRA) member (hired on or after January 1, 2013) and want to retire at the same age and with the same monthly income as a classic member, consider contributing to a personal savings plan.
Today, nearly 60% of CalPERS active members are PEPRA members. PEPRA, enacted to improve the long-term stability of the CalPERS retirement fund (PDF), increased the age you can retire, reduced the benefit factor formulas, and included a compensation limit.
As a result, PEPRA members receive less retirement income than classic members who retire at the same age and with the same years of service credit. But it’s not all bad news. With thoughtful planning, PEPRA members can create a comfortable financial future that’s on par with classic members’ benefits.
PEPRA vs. Classic Benefits
As an example, Cliff and Patty both work for the state of California. They are twins, both born in 1990. Cliff started working in 2010 before PEPRA and is a classic member. Patty began working in 2013, after PEPRA, and is a PEPRA member.
Cliff and Patty are associate governmental program analysts, and both plan to work for 40 years without taking any breaks in service or promoting. During a CalPERS retirement class, Patty (PEPRA) realized that even though she and her brother have nearly identical situations, she needs to plan differently for retirement if she wants to have about the same estimated retirement allowance as Cliff.
Cliff (classic) and Patty (PEPRA) estimate that they will both earn $10,000 a month in their final year of working. Using the CalPERS Retirement Estimate Calculator, Patty (PEPRA) sees that even though she works the same length of time as Cliff, her estimated monthly retirement income will be lower.
| Cliff | Patty |
| Benefit Formula: 2% @ 55 (Classic) | Benefit Formula: 2% @ 62 (PEPRA) |
| Age at Retirement: 60 | Age at Retirement: 63 |
| Final Compensation: $10,000 | Final Compensation: $10,000 |
| Total Service Credit: 40 | Total Service Credit: 40 |
| Benefit Factor: 2.314% | Benefit Factor: 2.100% |
| Estimated Unmodified Allowance Amount: $9,256 | Estimated Unmodified Allowance Amount: $8,400 |
Because Patty (PEPRA) started three years later than Cliff (classic), she’ll need to work an additional three years before retiring, hoping to match her brother’s total service credit. While Patty’s (PEPRA) service credit matched, her estimated unmodified allowance amount, or estimated monthly retirement income, is $856 less than Cliff’s.Patty can make up for this by:
- Working an additional two years (until she is 65) to raise her benefit factor to 2.300%
- Start investing to make up for the $856 gap in monthly income
- A combination of the two
Consider Enrolling in a Deferred Compensation Plan
If you’re a PEPRA member and want to retire as early as possible with retirement income that is similar to classic members, it’s never too late to start your own savings plan. The earlier you start, the sooner you can take advantage of interest income that helps your retirement savings grow.
Depending on your employer, CalPERS offers a variety of deferred compensation plans that allow you to supplement your retirement benefits through pre-tax and after-tax options.
If you are a state employee, the California Department of Human Resources (CalHR) offers 401(k) and 457 savings plans through Savings Plus that allow you to supplement your retirement benefits through pre-tax and after-tax options. A financial planner can also help you come up with a savings plan to meet your retirement goals.
The best gift you can give yourself may be that first deposit in your own personal retirement account. Start now to enjoy later.