How pensions work
Who gets a pension?
Anyone employed by the state, schools or a local government agency. California law provides for three types of retirement systems. CalPERS is the biggest, covering 1.6 million active and retired employees of the state, schools, cities, special districts and some counties.
Another 400,000 are enrolled in pension systems administered by 20 counties under the County Employees Retirement Act of 1937. They are: Los Angeles, Alameda, Contra Costa, Fresno, Imperial, Kern, Marin, Mendocino, Merced, Orange, Sacramento, San Bernardino, San Diego, San Joaquin, San Mateo, Santa Barbara, Sonoma, Stanislaus, Tulare and Ventura. For more information, click here.
A handful of local governments, including the city and county of San Francisco, run independent pension funds.
How are pensions calculated?
Public employers in California offer what is called a defined benefit pension. This means the pension amount is determined at retirement using a specific formula. The pension is guaranteed and cannot decrease. The formula for calculating a defined benefit is based on : 1) years of service; 2) age; and 3) a per-year multiplier. For example, using one common formula a firefighter, with a 3% at 50 formula is entitled to 75% of his or her final compensation at age 50. (25 years X 3%-per-year-multiplier = 75% of final compensation).
What are the formulas?
CalPERS alone has nine different benefit formulas; likewise, the 20 counties negotiate differing pension formulas with each employee union. The best benefits generally are given to safety services, such as police and firefighters. For a list of current formulas for CalPERS agencies, click here. There is no similar list for the non-CalPERS counties.
Are county pension systems more prone to spiking?
Yes. CalPERS permits some non-salary compensation to be counted as pensionable. A 1993 state law limited much of the spiking. However, the law did not apply to the 20 counties and legislative attempts to limit spiking have failed. In addition, a 1997 state Supreme Court decision mandates that retirees in the 20 counties are permitted to add “special pay” and “premium pay” items, such as shift differentials, bilingual pay and uniform allowances, to their regular base pay for the purpose of calculating a pension. Some counties go beyond the court’s ruling, however, allowing retirees to also add in the cost of employer paid health care and credits for employer paid pension contributions.
The court decision and local county policies, taken together, have the effect of significantly boosting pensions, sometimes beyond working pay if a retiree has had a long career. Using the example above, a firefighter who is initially entitled to a 75% pension could boost it to 100% and beyond by adding the value of special pay, overtime, vacation cashouts and education incentives to his or her regular pay. In addition, many counties provide an annual cost-of-living increase to retiree benefits.
