CalPERS
Disposition of CalPERS Retirement Benefits
California Public Employees Retirement System
An opportunity exists to enhance the expected value of retirement benefits payable under CalPERS through a properly drafted disposition order. At the same time, a minefield of potential problems exists if all issues are not understood and properly resolved. As an attorney, you have a duty to obtain the services of a competent specialist if a task goes beyond your expertise.
Opportunities:
Legal Separation v. Divorce
It may be beneficial for the parties not to go through with a divorce, but to stop with a legal separation, so as to preserve the survivor continuance benefit and other possible benefits, such as employer paid health benefits.
Borrowing Contributions
A separate account can be established for the nonmember spouse. The nonmember spouse can cash in the separate account. At a future date, the member spouse can redeposit, with interest, the amount withdrawn and restore the service and contributions to his/her account. This is a way to “borrow” money from CalPERS, perhaps to pay attorney fees!
Don’t Overpay for an Optional Form of Settlement
The concept of Steinquist is that the interest of the nonmember is limited to what his/her interest would have been had an alternative, a service retirement, to the disability retirement been taken. The reduction, cost, associated with the election of an optional form of settlement in a disability retirement is greater than for a service retirement benefit. Nonmember should not pay the additional cost associated with the election of an optional form of settlement in a disability retirement. The member alone benefits from the more favorable tax consequences associated with a disability retirement.
Separate Account
In some cases the establishment of a separate account with more than one-half the community service is indicated. For example, each year of service moved to a separate account for 55 years old female spouse of a 50-year-old CHP member has an actuarial value of about 35% greater than if the service remains in the member’s account.
Plan Subsidy
In other cases, advantage of the employers’ subsidy (if the member is male) for optional forms of settlement can be taken if the nonmember retains an interest in the member’s account.
Separate Account for Which Spouse?
If the divorce from the former spouse was some time ago and the member has a current spouse, it may be possible to establish a separate account for the current spouse with the former spouse as the beneficiary for survivor benefits. Note: benefits in a separate account are based on the salary of the member prior to divorce or separation, not prior to retirement.
Two Orders
It should be possible to use both a separate account and a “tag along” order in the same dissolution. This presents several creative opportunities.
Redeposit
Member may qualify for service for former CalPERS employment or military service. In most cases, but not all, this service should be purchased.
Concurrent Retirement
Member may have service with a California public agency that is not under CalPERS. Only if a concurrent retirement is taken, is the highest salary from either system is used to determine benefits from both systems.
Problems:
Do you understand the problems that exist if you represent the nonmember spouse and:
Member Returns to Service
Member retires, your client is awarded a percentage of the benefits payable, and the member returns to service.
Member Remarries
Member remarries and dies while eligible to retire and his/her new spouse elects a lifetime benefit (the “special death benefit”) in lieu of the ordinary death benefit?
Member Dies while Active but Before Retirement
Member is eligible to retire, your client makes a Gillmore demand to start receipt of his/her interest directly from member and member dies before he/she retires?
Unused Sick Leave or a “Golden Handshake” is involved
What happens if the member is or becomes eligible for a “golden handshake” or has unused sick leave?” What are the implications of including/excluding this additional service in the denominator of the “time rule” apportionment fraction?
Member and/or Nonmember are in Poor Health
What is one or both spouses are in poor health?
Member Remarries
Member remarries before retirement and has a new spouse who is eligible for a survivor continuance benefit.
If you represent the member spouse and have done a “buy out” of nonmembers interest are you aware of the conditions under which the nonmember still has an interest in your clients CalPERS benefits?
Those are just some of the opportunities and potential problems that need to be addressed in the development of a proper CalPERS division order. Remember: The model orders provided by CalPERS are for the benefit of CalPERS, not for the benefit of either of the spousal parties.