FAQ: The state’s budget proposal and CalPERS pensions
On May 14, 2020, Governor Gavin Newsom released a revised budget proposal that aims to close a budget gap estimated as high as $54 billion due to the COVID-19 recession. Governor Newsom’s proposal includes a potential 10% pay reduction for state employees that would take effect beginning July 1.
We know these are difficult times for all of us, so we put together a resource to address some of your top questions.
Can the governor use CalPERS funds to pay for state budget deficits?
No. Per Article XVI in the California State Constitution, Section 17, CalPERS funds are barred from covering state expenditures. Additionally, the only time retirement benefits are adjusted are in the rare event an employer violates their contractual obligations to CalPERS.
If I’m an active state member and my pay is reduced by 10%, does this impact how my final compensation will be calculated?
Until a final decision concerning furloughs and/or salary reductions has been made, we can’t determine possible impacts to service credit or final retirement compensation. It’s important to remember that retirement benefits are calculated using your final compensation, which is your highest average annual compensation during any consecutive 12- or 36-month period of employment, depending on your collective bargaining agreement or employer contract. Any payroll reductions would go into effect on July 1. Governor Newsom’s proposed pay reduction applies only to state workers.
If I’m a retiree, does the 10% pay reduction affect my pension?
No. The 10% potential pay reduction has no impact on your pension that you are already receiving or the ability to pay the pension benefits our members have earned. We’re fully committed to protecting the fund and the retirement security of California’s public employees.
The governor’s budget proposal changes employer contributions for the state and schools. Will this impact my retirement check?
No. The governor is proposing to redirect supplemental funds provided to CalPERS earlier this year to pay down the state’s unfunded liability obligations over the next two years. The revised budget also proposes to refocus $660 million in existing state payments on behalf of school plans to achieve lower rates over the next two years. These changes will not impact retirement checks.
What is a golden handshake, and will my employer be offering these?
A golden handshake is an early retirement incentive that may be offered by your employer. It was not part of the governor’s budget proposal for state workers but may be offered by your employer. A golden handshake provides two years of additional service credit. An employer must have an impending layoff and demonstrate that enough savings can be realized to pay for the golden handshake. Ask your employer if they are offering this benefit, since each type of employer has a different process to initiate this option. It’s important to remember that if you retire under a golden handshake and then reinstate from retirement, you will lose this benefit.
Does CalPERS offer more ways to save for my retirement?
Yes. CalPERS offers deferred compensation plans, including a 457 plan for employees of participating public agencies and schools, and an after-tax supplemental contribution plan for state employees and members of the Judges’ Retirement Systems I and II.
Separately, CalHR also administers the Savings Plus plan, which is a 401(k) and 457 deferred compensation plan for state employees and California State University employees.
Stay Up to Date on CalPERS and COVID-19
We want to reassure you that your benefits are safe and that we’re fully operational. Despite the circumstances, we’re here for you. To get the latest updates on how we’re addressing the COVID-19 pandemic, visit: