How to Correctly Value the Community Property Interest In a Public Retirement Plan
The majority of a member’s pension is funded by their employer and future investment earnings, and not by the member directly. This fact is typically noted on the Member Statement issued annually by the retirement system. The amount a CalPERS member is required to pay into the retirement system (which can be as high as 15% of their pay) depends on the employer’s bargaining agreement with CalPERS. The amount a SBCERS member is required to pay into the retirement system is based on their age at entry and membership class. As these two illustrations show, member contributions clearly only cover a small portion of the overall funding requirements. Example: Assume a SBCERS Safety 3% at 50 (Plan 6A) member is retiring with 20 years of service, final average salary of $8,000 per month and $300,000 in their member contribution account. The member will receive a lifetime benefit of $4,800 per month (20 x $8,000 x .03 = $4,800), plus cost-of-livingadjustments. The actuarial present value of this income stream is approximately $1.5 million, not the $300,000 in contributions and interest from the member. It would take only 5.2 years of receiving $4,800 per month to fully deplete the $300k member contribution.