After the federal government, the California Public Employees’ Retirement System (CalPERS) is the largest provider of employee retirement benefits in the country. CalPERS offers what is known as a "defined benefit plan", which means an eligible member will receive a specific dollar amount based on three factors: how long the member worked, the member’s salary and the benefit formula the employer provides. The other common type of retirement program is a "defined contribution plan" in which the employer contributes a fixed dollar amount or a percentage of salary to a traditional deferred compensation account on behalf of the employee. At one time, defined benefit-style plans were typical in both the public and private sectors. In the last several decades, there has been a shift from defined benefit plans to defined contribution plans in the private sector.
CalPERS divides membership between public safety employees, such as police officers and firefighters (“Safety members”) and all other employees (“Miscellaneous members”). Within each category of membership (Safety and Miscellaneous), there are different benefit formulas that an employer can provide. Up until recently, employers usually provided one formula for each membership category (i.e., one for Safety members and one for Miscellaneous members). More recently, with the considerable attention that has been given to paying for public employee retirement benefits, some employers have begun offering a second, lower benefit formula for new employees (commonly referred to as a “2nd Tier”).
There are many benefit formulas available for each category of membership. For Miscellaneous, there are 5 formulas; for Safety, there are 4. Novato provides the “2% at 55” formula for Miscellaneous employees and the “3% at 55” formula for Safety employees. The formula references (e.g., “2% at 55” and “3% at 55”) are merely convenient ways of referring to and distinguishing the formulas. Information about the various formulas can be found on the CalPERS website. Below is a table showing the benefit formulas and where Novato’s benefits are compared to other local communities.
|Belvedere||2% @55||2% @50|
|Corte Madera||2.5% @55||3% @50|
|Fairfax||2.5% @55||3% @50|
|Fairfax (2nd Tier)||2% @55||3% @55|
|Larkspur||2.5% @ 55||3% @ 55|
|Mill Valley||2.5% @ 55||3% @55|
|Mill Valley (2nd Tier)||2% @ 55||3% @ 55|
|Novato||2% @ 55||3% @ 55|
|Ross||2% @ 55||3% @ 55|
|San Anselmo||2.7% @ 55||3% @50|
|San Anselmo (2nd Tier)||2% @ 55||3% @ 55|
|San Rafael||2.7% @55||3% @ 55|
|Sausalito||2.5% @ 55||3% @55|
|Tiburon||2% @ 55||3% @ 55|
|Petaluma||2% @ 55||3% @ 50|
|Rohnert Park||2.7% @ 55||3% @ 50|
|Rohnert Park (2nd Tier)||2% @ 55||3% @ 55|
|Santa Rosa||3% @ 60||3% @ 50|
|Sonoma County||3% @ 60||3% @50|
To assist you in understanding how the formulas work, here is an example for the 2% at 55 formula for our Miscellaneous employees. Under this formula, an employee would receive a 2% of their salary (the “benefit factor”) for each year of service if the employee retired at age 55. If an employee started working at age 25 and retired at age 55, the employee would have 30 years of service times 2%. As such, the employee would receive 60% of his or her salary at retirement.
The benefit factor is lower at age 50 (the minimum retirement age) and at 5 years of service (the required vesting period) and grows as the employee gets older and increases their years of service. Under the 2% at 55 formula, the minimum factor is 1.426%. This is based on age 50 and 5 years of service. The benefit factor can grow as high as 2.418% at age 63.
As noted above, under the Miscellaneous formula, the benefit factor maximum is 2.418% per year of service at age 63. This means the employee will not get more than 2.418% for each year of employment once he or she turns 63; however, there is no limit on the years of service, so someone who works 40 years would get a little less than 97% of their salary at retirement. Those individuals are few and far between. It is important to note that the City placed a cap of 100% of salary on retirement benefits for new Miscellaneous employees last year. For Safety members, the maximum they can get is 90% of their salary. The Safety cap is a statutory limit that has been in place for a long time.
CalPERS uses the average of the highest consecutive 36 months of salary as the standard method for determining the retirement benefit. Typically, the highest 36 months is the last three years of employment just before retirement. If the employee earned $50,000 in 2008, $52,500 in 2009 and $55,750 in 2010 and retired at the end of 2010, the average earnings for the 36 month period would be $52,750. CalPERS would use this amount as the salary basis for determining the retirement benefit. Under the single highest year method, CalPERS simply uses the highest year of salary as the basis. Using the data above, they would use the 2010 earnings of $55,750 as the basis under the single highest year.
The table below provides links to pension information provided by CalPERS. Also included is a PowerPoint presentation on pensions that City Manager Michael Frank made in 2010.
|CalPERS Pension Information|
|City Manager's Pension Presentation - January 2010|
The table below includes links to other pension pages developed by the City.