If you’re a current CalPERS member — meaning you work for a CalPERS-covered employer — then you’re contributing to your future retirement in the form of a defined benefit.
This is a lifeline you’ll be able to rely on when you retire, and your defined benefit pension is something you will receive for the rest of your days. In other words, the money you and your employer are chipping in now will be there for you down the line.
However, sometimes members leave their CalPERS-covered employment — for a variety of reasons — and when they do, the question of what to do with the member contributions they’ve already contributed to our system comes into play.
Should you leave it? Should you move it elsewhere? Should you just pocket it?
These are all valid questions to consider if/when the time comes, and we’ll lay out the pros and cons of each option.
Regardless of the option you choose, it’s crucial to understand that withdrawing your contributions will result in the termination of your CalPERS membership. This decision will have permanent and irreversible effects on your membership and benefits, so it’s essential to approach it with careful consideration. Be sure to consult a trusted financial and tax professional to ensure you’re making the most informed decision for yourself.
Taking a Lump-Sum Refund
A one-time lump-sum refund option — meaning you’re pocketing your CalPERS member contributions right now — features a handful of strict restrictions and triggers severe repercussions.
Pros:
- You receive your funds immediately.
- You have flexibility in using your CalPERS contributions (now vs. later).
Cons:
- This action terminates your current CalPERS membership and any applicable benefits.
- Your funds will be taxed as income (federal and state tax laws apply).
- If you ever rejoin a CalPERS-covered employer, you may redeposit your contributions if you requalify for CalPERS membership or are a member of a certain other California public retirement system. Your cost will be higher than the amount of your refund and will increase over time due to interest.
- You lose out on the opportunity and power of compounding interest.
- You may be assessed additional federal and state taxes if you withdraw your contributions before age 59 ½.
The bottom line: While choosing to fully withdraw your CalPERS contributions (without rolling it over to a qualified retirement account) would provide you with funds immediately, it can be incredibly costly — both in terms of your CalPERS membership and benefits, as well as taxes and other costs you might incur from withdrawing (especially before age 59 ½).
To reiterate: Doing this will cause permanent, irreversible action on your CalPERS membership and benefits — and should be considered with great care and caution. Consult trusted financial and tax professionals beforehand to ensure you’re making the best decision for yourself.
Rollover to Eligible IRA or New Employer Plan
You also have the option to withdraw your CalPERS contributions and roll it over to either a qualified individual retirement account (IRA) or an employer plan that accepts rollovers.
Keep in mind — the eligible contributions to be rolled over are your own member contributions (plus interest), and do not include your employer’s contributions.
Also, because this would count as a withdrawal, this action carries major ramifications for your CalPERS membership. With that said, here are some of the pros and cons of pursuing this route.
Pros:
- The money you withdraw is still contributing toward your future retirement income, just through a different apparatus.
- This can bolster any other existing retirement accounts you already have and/or plan to initiate.
- This can potentially provide flexibility in your retirement investment strategy.
- You avoid immediate taxes on the funds you withdraw.
Cons:
- This action terminates your current CalPERS membership and any applicable benefits (pension, health, etc.) under that membership.
- It’s likely you’ll need to be more active managing outside retirement accounts.
- If you ever rejoin a CalPERS-covered employer, you may redeposit your contributions if you requalify for CalPERS membership or are a member of a certain other California public retirement system. Your cost will be higher than the amount of your refund and will increase over time due to interest.
The bottom line: If you choose this option, you’re essentially choosing to take your member contributions and put them into another retirement savings plan — which will negatively impact your current CalPERS membership and future benefits, but it will still supplement your retirement big picture.
See our Options at Separation (PDF) resource guide for more detailed information.
Leave Your Contributions on Deposit with Us
The last option to consider upon leaving CalPERS-covered employment is to leave your contributions exactly where they are.
Pros:
- Your CalPERS contributions — coupled with employer contributions made during your CalPERS-covered employment — will continue to accrue interest.
- Your CalPERS membership status and applicable retirement benefits remain intact.
- If you return to CalPERS-covered employment down the line, you can pick up where you left off.
- The option to cash out your contributions or roll them over later are still available.
Cons:
- You’ll have limited access to these retirement funds.
The bottom line: If you’re not sure what the future holds and want to keep the option to return to CalPERS-covered employment, you can consider leaving your funds on deposit with us as you continue your career path.
So, What Should I Consider?
This is something only you can decide for yourself, as everyone’s circumstances are different. And before making any kind of decision on what to do with your CalPERS contributions upon leaving CalPERS-covered employment, make sure you’re discussing it with the right people to be best informed — including us here at CalPERS.