CalPERS and Divorce: The Definitive Guide

CalPERS and Divorce Guide

CalPERS oversees retirement and health benefits coverage for 1.9 million California state, school and public agency members. CalPERS also manages the largest public pension fund in the United States.

Here are some things you need to know if you or your spouse is a CalPERS member and are going through a divorce.

What actions do I need to take if I’m a CalPERS member (or my spouse is) and we are going through a divorce or have recently finalized a divorce?

actions CalPERS member should take during divorce

There are several things you may need to consider:


If you are going through a divorce and have not yet retired, it is critical that you seek consent of the Court and complete the division of your CalPERS retirement prior to retirement/commencement of benefits (via Domestic Relations Order-sometimes referred to by acronym as a “DRO”).

This is important because if you push through with retirement/commencement without the consent of the Court or without the division of your account, several negative outcomes might happen.

First and perhaps the most obvious, you could be given monetary sanctions by the court for disobeying court orders-including but not limited to, an award of a greater percentage of your retirement to your ex, as means of punishment for your actions.

Second, (if you have not “taken status” and become legally divorced), CalPERS may force you to select an optional survivor benefit election that gives greater coverage to your former spouse then would otherwise be required under the law, and this coverage could be irrevocable (your ex receives a ‘bonus’ for your bad actions).

CalPERS does not allow modification of optional survivor benefit elections after retirement in most situations (you could be stuck, even if the Court does not require you to select a survivor benefit option at a later date – you might not be able to remove it!).

Third, you could be charged for the value of the lost survivor benefits if you do not select an optional beneficiary election that protects your former spouse in the event of death (or you may be forced to purchase a life insurance policy, that you otherwise would not have been forced to purchase). The value of the survivor benefits could be worth tens of thousands of dollars. You should consult with a QDRO/DRO preparer or attorney, before trying to ‘force’ retirement.

If you are going through a divorce and you have retired, you should know that unless you are awarded 100% of your CalPERS benefits, your optional elections are non-modifiable.

Make sure you do not negotiate under the false assumption that you can change your beneficiary elections.

If you ARE awarded 100% of your CalPERS benefits, you should remember that even though you may be able to revoke certain optional beneficiary elections, you will still have to ‘pay the cost’ of optional beneficiary elections that have a “W” next to their name (those optional beneficiary elections that are Without a ‘pop-up’ option-meaning you pay for the coverage, even if the Court no longer requires you keep it in place).

Before you negotiate a ‘deal’ with your ex, make sure that CalPERS will follow the terms of your deal. Again, consulting with an expert in this area is critical.

CalPERS benefits are considered community property under California divorce law. CalPERS has a great resource which you can review here: A Guide to CalPERS Community Property.

Your dissolution of marriage revokes some designations you may currently have on file with CalPERS (but not in all cases-especially after retirement, your optional designations become irrevocable in some circumstances). Review your beneficiary designations.

If you need to make changes and the Court allows for changes, log in to your my|CalPERS account to make changes online or complete the appropriate designation form depending on if you’re still working or retired:

If you’re retired, review your current tax withholding and exemptions. To make changes, log in to your my|CalPERS account or complete the Tax Withholding Election (PDF).

You may also want to review your Power of Attorney or consider designating one. Review the CalPERS Special Power of Attorney for more information.

CalPERS Health Benefits Coverage

You must remove your ex-spouse from your health plan as required by California Public Employees’ Retirement Law.

Your ex-spouse’s entitlement to coverage ends at midnight on the last day of the month that your marriage dissolution is final.

Make sure you do not remove your ex from health insurance coverage prior to finalizing your divorce.

Doing so could be a violation of your automatic temporary restraining orders (ATROS) that are present in every divorce case.

Violation of the ATROS could result in monetary sanctions against you, you could be required to pay 100% of your ex’s medical bills out of pocket or you could be forced to purchase and pay for a private health insurance plan for your ex, at your expense.

If you’re still working and the court allows for a modification of your health plan, contact your personnel office to make any changes. Your employer will need a copy of your divorce decree.

If you’re retired, contact CalPERS directly. They will need a copy of your divorce decree.

Long-Term Care

If your ex-spouse’s monthly premium payments were deducted from your paycheck or retirement check, contact CalPERS Long-Term Care at (800) 982-1775 to change the premium deduction amount.

Deferred Compensation Plans

While your Deferred Compensation Plan is NOT part of your CalPERS Pension Plan, it is a ‘companion plan’ in that many CalPERS members have one.

Contact your employer or the savings plan directly to review or change your beneficiary information for these plans:

There are other Deferred Compensation Plan administrators, as well, including Nationwide, ICMA-RC, and others.

Make sure you review your accounts and locate all plans that exist.

How do I contact CalPERS to have my questions answered regarding how divorce will affect my benefits?

Contact CalPERS to answer

CalPERS offers several options for members with questions.

Go to the CalPERS contact page and choose the method that is most appropriate for your situation.

It is important to note that the “community property department” at CalPERS (formally known as “department 420”) does not take incoming phone calls and they are the ONLY department who can answer your divorce questions accurately.

Many of the CalPERS agents who answer the phones when you call do not give accurate or complete information. The only way to ensure you receive 100% accurate information is if you write a letter to the community property department and wait for a response.

How is a CalPERS pension divided in a California divorce?

Divided CalPERS pension

There are three different ways a CalPERS pension plan can be divided.

These three different ways are referenced in the CalPERS community property booklet as:

  1. Model Order A
  2. Model Order B
  3. Model Order C

The domestic relations orders (QDRO/DROs) that are prepared by QDRO preparers or QDRO attorneys must follow one of these approaches to be approved by CalPERS.

The decision to pick “Model Order A” or “Model Order B” division methods belongs exclusively to the Non-Member/Non-Employee spouse (See Family Code §2610(a)(3)).

Also, if the Member is already retired, there are no options to choose from and the ‘already retired’ “Model Order C” format must be used.

CalPERS Model Order B (The Pre-Retirement Shared Interest Approach)

The Model Order B approach is only an option to those CalPERS Members who have not yet retired.

This is the most common option picked by the Non-Member Spouse.

Under this option, the Non-Member Spouse is able to “piggy-back” on the pay raises and promotions of the Employee Spouse to enhance the Non-Member’s interest.

For example, if the Member was married and earned 20 years of service, then the Non-Member spouse would be entitled to 10 years of service.

The value of those 10 years could be 2.5% x 10 years x highest pay of member spouse at the time of retirement.

Under this formula, the Non-Member Spouse’s benefits ‘promote’ with the Member Spouse.

The downside to this approach is that CalPERS will not pay the Non-Member Spouse directly until the Employee Spouse actually retires. Gillmore rights, however, are still retained.

If the Non-Member spouse chooses this approach, the Member Spouse cannot “work more years” to make up for the “lost years” assigned to the ex-spouse.

Once the Member Spouse “maxes out” their service years-they can no longer earn additional years’ service credit in their CalPERS plan.

CalPERS Model Order A (The Pre-Retirement Account Segregation Approach)

The Model Order A approach is only an option to those CalPERS Members who have not yet retired.

Under the ‘Model Order A’ approach (The Account Segregation Approach), the years of service earned through CalPERS service are segregated into a separate account for the Non-Member Spouse.

While the Non-Member Spouse will be able to ‘retire’ and commence benefits independent of the Member Spouse (when both parties are age 50), the downside to this approach is that the benefits are ‘frozen’ and any post-dissolution enhancements to the retirement benefits due to pay raises/promotions will be the Member’s Separate property.

Since California divorce law allows for a non-employee spouse to benefit from post-separation promotions and pay raises, under Model Order A, the non-member spouse is giving up their entitlement to those enhancements.

If we use the same 20 year example, the formula changes to: 2.5% x 10 years of service x pay at the time of dissolution…you can see the downside to the Segregation Approach for Non-Member Spouse if pay raises occur after dissolution.

If the Non-Member spouse chooses this approach, the Member Spouse can “work more years” to earn back the “lost years” assigned to the ex-spouse. The Member Spouse cannot “buy back” the years.

Model Order A “Cash Out” (The Pre-Retirement Account Segregation “sub-option”)

The ‘Cash Out’ option is really a sub-option of the Model Order A, account segregation approach.

If the Non-Employee Spouse chooses to segregate, one possible payout option CalPERS will offer to the Non-Employee Spouse will be ‘cashing out’ the mandatory service contributions made during the years assigned to the Non-Member Spouse.

Note that this would include mandatory contributions plus interest, but NOT any of the employer-side contributions to the benefits.

Choosing to cash out is almost always fiscally irresponsible and would be against the advice of any Certified Divorce Financial Analyst wroth their salt, absent extreme circumstances (the non-employee spouse has a terminal disease, for example).

The value under a cash-out is far less than choosing a life annuity as a sub-option under the segregation approach.

You should absolutely consider discussing this with a Certified Divorce Financial Analyst if you are considering this option.

If the Non-Member spouse chooses this approach, the Member Spouse can “buy back” the “lost” years of service, by re-depositing the amount of funds the Non-Member Spouse “cashed out”, making it as if the Member Spouse was never married to the Non-Member Spouse.

If the Member Spouse does not have the money to “buy back” the “lost years” of service, then the Member Spouse can work additional years to earn them back.

Model Order C (The Already Retired Shared Interest Approach)

If the member spouse is already retired, then the only option that can be selected is the Model Order C, which is similar to Model Order B, except that the optional beneficiary elections are “fixed” and cannot be modified (whereas under Model Order B, optional beneficiary elections can be negotiated, if the parties are willing to negotiate).

As with any retired member, after retirement and commencement of benefits, the Member cannot earn additional years of service to add to the value of the retirement benefits.

CalPERS pension plans are governed by the California Government Code. They are considered community property and must be divided equally according to California community property (family code 2550 mandates equal division absent an agreement between the parties) rules in a divorce.

For example, if a spouse has worked for a CalPERS employer for 200 months and got married at month 100, then the community property portion would be the 100 months of employment during marriage. The other spouse would be entitled to 1/2 of the 100 community months, or 50 months of CalPERS service contributions.

It may be possible to keep some or all of a CalPERS pension in exchange for trading your interest in another asset (or assets) of similar value.

The value of the CalPERS benefit is not what is reported on the annual member statement. That value should not be used for any offset negotiations.

The services of an actuary may be utilized to estimate a ‘fair’ value of the benefits-but since retirement benefits are valued at the date of retirement in California, that estimated valuation is just that…an estimate.

The following is a typical example of the huge disparity between the account balance on the member statement and the actuarial present value.


Comparison of CalPERS account balance to the actuarial value

Because pensions tend to be sizable, retaining a greater share of CalPERS benefits may involve trading your interest in other assets, such as the house or other retirement accounts.

A final divorce decree will spell out the CalPERS pension division specifics and is a legal and binding document.

When trading assets (e.g., I get the house, you get your pension), keep in mind that not all assets are created equal. Pay attention to ‘pre’ vs ‘post’ tax values.

In most cases, the actual mechanism that is used to split a pension or retirement account is known as a Domestic Relations Order, or DRO. But don’t be surprised if you hear your divorce attorney refer to the document as a “QDRO” (pronounced “qua-dro”).

A firm that specializes in preparing QDROs and DROs can prepare the documentation needed to execute a DRO. We strongly recommend that you seek the advice of a retirement benefits specialist/QDRO expert.

Can I prepare a CalPERS DRO without using a lawyer or specialized firm?

CalPERS DRO without lawyer

Yes, but don’t do it!

There are generally large sums of money at stake when dealing with a CalPERS pension. Dealing with the legalities and requirements when splitting a pension can be onerous.

Any mistake you make could cost you dearly for the rest of your life, and you will be reminded of your mistake on a monthly basis when your payments from CalPERS come in less than you deserve.

Having a DRO prepared by an attorney or firm that specializes in this service will cost you several hundred dollars, but the investment and the peace of mind are well worth the investment.

What are the steps involved in preparing and filing a CalPERS DRO?

First, you will need to gather all of the required information (names, address, Social Security numbers, etc.) as well as a copy of your divorce decree, and the Plan Booklet for CalPERS pensions.

You should also get a copy of the rules and procedures for submission of a DRO. CalPERS will also have a sample DRO you can access.

Armed with this information, your DRO will be drafted and you will verify it for accuracy.

It will be sent to your ex-spouse or their divorce attorney for review and approval.

If it is accurate and conforms to the divorce decree, it should be accepted.

Emotions can hinder this step and cause delays if there is not enough trust in place.

Once the draft has been agreed upon, it is sent to CalPERS for an initial review and approval in draft form.

Sometimes, CalPERS will request changes, so don’t be alarmed if this is the case. It is fairly normal, and the changes are often minor.

After pre-approval, both parties will sign the document which will then be submitted for a judge’s signature by your attorney.

After the judge approves the DRO, obtain a certified copy from the clerk of the court where your divorce took place and send it to CalPERS for final approval so that an actual division of the account can take place.

Where can I find sample CalPERS Domestic Relations Orders?

CalPERS has published a booklet that contains samples of legal documents used in California state courts to divide the community property of a member’s CalPERS retirement benefits when dissolving a marriage or legal domestic partnership.

It presents sample domestic relations orders pertaining to the standard methods of dividing retirement benefits due to community property—the pre-retirement Separation of Account (Model A), pre-retirement Time Rule Formula (Model B) and post-retirement (Model C).

These orders are based on the California Public Employees’ Retirement Law (PERL) and the California Family Code.

CalPERS Retirement System Model A is one method used to separate the account of a member who is not retired. The member’s contributions, interest, and service credit are divided into two individual accounts based on a court order.

CalPERS Retirement System Model B is another method that divides benefits for Members who are not retired according to the “Time Rule Formula.”

The time rule formula is commonly used in divorce cases to calculate the community interest of the member’s retirement benefits and the portion the nonmember spouse is to receive.

Members can use this formula before they begin to receive a retirement benefit or while receiving a retirement to help estimate the amount their spouse might receive after a division order is completed.

Note that if no method is specified in the Parties’ judgment, then pursuant to Family Code 2610(a)(3), the non-employee spouse has the exclusive right to pick between Model A or Model B.

CalPERS Retirement System Model C (used for retired members only) divides the benefits according to the Time Rule Formula.

The court must specify the time rule formula in the judgment.

The judgment should also contain the dates of marriage and separation of the parties.

When using the time rule formula to divide a benefit, the language in the court order should be specific regarding these key elements:

  • Member Dies Before Former Spouse
  • Former Spouse Dies Before Member
  • Court-Ordered Election of an Option
  • Lump-Sum Death Benefit
  • Payment by Separate Warrant

You can access the CalPERS sample Domestic Relations Orders here.

What is the processing time for each CalPERS model?

Once the DRO is filed, judges typically take 3-6 weeks to sign the DRO. This means it takes about two months in a best-case scenario before submission to CalPERS.

After CalPERS receives the order, the time it takes to process the request will vary.

With Model A, it takes about 6-10 weeks for review and approval. Models B and C take much longer, depending on your situation.

CalPERS sets a targeted processing timeframe of 60 days to review a proposed or filed order after they receive it.

If you have submitted a retirement application, you will receive benefit payments within 60 days after CalPERS determines the order is acceptable, the application received date, or your retirement date, whichever is later.

In addition to receipt of a certified copy of the DRO, CalPERS requires a joinder be filed. You can access a free joinder generator here if you wish to prepare and file the joinder yourself.

What are the tax implications of dividing a CalPERS pension?

Tax implications

Transferring the portion of the pension or retirement account from the participant spouse to the non-member spouse does not trigger a taxable event to either party.

However, the non-member spouse is responsible for taxes on their share when they begin receiving distributions.

If executed properly and a rollover is desired, you will not have to pay income taxes on those amounts rolled over. Rollovers are not arranged as part of the DRO and are only possible after a ‘cash out’ under Model Order A. You can arrange a rollover with CalPERS as a separate action, after a Model Order A DRO is processed

You need to be aware that any rollover forfeits the massive subsidy provided by the employer and is thus generally not considered financially beneficial to the former spouse.

If you take a cash distribution instead of rolling over CalPERS funds into your own plan, the plan is required by federal law to withhold 20% of the amount you receive for federal income taxes (similar to having taxes withheld from your paycheck).

You can claim the amount CalPERS withholds on your federal income tax return when you file it the year following the payment to you.

If you want your funds immediately, you can avoid the 10% penalty on early withdrawals (prior to age 59-1/2) by taking the funds directly from your portion of the CalPERS distribution. There is also a 2.5% early withdrawal penalty at the state level in California.

You must request this immediate distribution prior to rolling any remaining funds into your own qualified plan or IRA.

You can cash out and then roll over the portion you want to keep tax-deferred within 60 days into another tax-deferred account, such as an IRA.

This is a hard deadline by the IRS. It’s best to make sure you have all the accounts lined up before you start this process.

CalPERS does not allow for a partial refund of contributions. It’s all or nothing.

If you first roll the funds over into your own plan or IRA and then withdraw them from your own plan, you may needlessly re-subject yourself to the 12.5% penalty (10% Federal, 2.5% California).

Rules regarding taxes, rollover laws, and distributions can get complicated. Consult with a Certified Divorce Financial Analyst (CDFA) or tax accountant to gain a full understanding of the implications and determine what’s in your best interest financially.

Who pays for the CalPERS DRO?

Short answer: It depends.

Some court orders demand that the parties split the fees, or one party may be required to pay 100% of the fees.

One party may refuse to pay the fee and in cases such as this, an equalization provision can be added to the DRO to reimburse a spouse for half of the fees if they end up paying initially due to noncooperation by the other spouse.

However, such deviation from the original Judgment may require further orders of the court, before DRO can be modified.

Additionally, such a deviation should be ‘pre-approved’ by CalPERS, prior to filing your DRO at court.

CalPERS may decide your ‘method of repayment’ does not fit into their rules and they may suggest alternate language.

Do I need a DRO if I have been able to keep my CalPERS intact as a sole owner after a divorce?

If you negotiate a settlement with your spouse that enables you to retain complete and sole ownership of your CalPERS account following a divorce, then you probably do not need a DRO.

But you must make absolutely sure that the divorce decree definitively spells out that your spouse’s community property interest no longer exists as it relates to your CalPERS benefit.

This may not be possible if the PERS member has already retired and is collecting their monthly benefit.

CalPERS must see the entire court order. The copy must be complete and filed orders should contain a legible filed stamp and the judge’s signature.

Additionally, you might need to file a dismissal of your previously filed joinder to release all community holds. You can dismiss your joinder utilizing judicial council form CIV-110, which you can find using a simple google search.

Is disability retirement subject to community property division in California divorce?

In California, all types of retirement benefits are considered community property, including disability and industrial disability retirement.

However, the community interest in a disability benefit is generally limited to what would have been the member’s non-disability service retirement, not what is actually being paid as disability.

Any ‘enhancements’ to the pension entitlement that are derived from the disability are considered the Member’s separate property.

Such enhancements might include (1) the tax savings from a non-taxable payment; (2) increases to the “base” payment that would have otherwise been lower for a ‘non-disability’ retirement; (3) payments made prior to the earliest date a member spouse would have otherwise been eligible to commence drawing from CalPERS, until the member spouse reaches their earliest retirement age.

It is important to note that even if the Parties agree that a Non-Member spouse should receive a portion of a tax-free benefit payment from CalPERS due from a disability, the IRS will not allow it.

Under Fernandez v. C.I.R. (2012) 138 T.C. no. 20 disability benefits paid to nonmember spouse under a DRO are taxable to the Nonmember Spouse even if tax-free to Member.

Therefore, to the maximum extent possible, Non-Member Spouse should be awarded his/her share of the benefits from the taxable portion of Member’s benefit (to maximize the tax-free savings to Member Spouse-because otherwise, the tax-free savings would be lost to the IRS.)

If a Non-Member spouse wants to release his or her share of my CalPERS benefits after a DRO has been filed and approved, what steps need to be taken?

The parties can prepare an amended order that awards your CalPERS pension as your sole and separate property.

In that amended order, the Parties should include provisions that state that all community holds are lifted and all joinders and DROs are dismissed.

If my spouse and I are legally separated, but not divorced, would my legally separated spouse be considered the “surviving spouse” on my CalPERS plan upon my death?

Yes, because you are still legally married. This means if your employer pays a surviving spouse continuance (different than an optional continuance), under a legal separation those surviving spouse continuance benefits are not lost.

When negotiating, you may want to consider a legal separation to preserve these benefits.

What happens to the CalPERS pension benefit if a spouse dies?

It depends on which method of division was picked pre-retirement (Model Order A or Model Order B) and what optional election was picked if the Parties are post-retirement (the member spouse has already retired and picked optional survivor continuance benefits at the time of retirement).

Under Model Order A, because the CalPERS account is completely divided and separately awarded to each party in different accounts, the death of either the Member Spouse or the Non-Member Spouse has no impact on the remaining living spouse/former spouse (unless, by agreement of the parties, the decedent spouse picked the living spouse/former spouse as a beneficiary of their separate account).

Under Model Order B, because the CalPERS account is not split but is rather “shared” (under the “shared interest” approach), the benefits from CalPERS are derivative of the ‘life’ of the Member Spouse.

This means, after the Member Spouse passes, 100% of all pension benefits disappear for all parties.

If an optional election is selected, then survivor benefits take over, to ensure continuing payments to the Non-Member Spouse (depending on the optional election, those surviving benefit payments may be more or less than the pension benefits that were being paid out during Member’s life).

Under Model Order B, since the benefits are derivative of the CalPERS Member’s life, if the Non-Member Spouse dies first, then the level of payments from CalPERS does not change-the Non-Member Spouse continues the same level of payments, those payments are just paid to the Non-Member spouse’s estate.

The member and non-member spouse can negotiate a ‘reversion of rights’ back to the Member Spouse, if they wish (meaning upon the Non-Member spouse’s death, the Non-Member Spouse’s payments are paid to the Member Spouse).

This reversionary right is not required under California community property law. It may be bargained for in exchange for something else during divorce settlement discussions.

Under Model Order C (the only post-retirement division method available), the analysis is the same as under Model Order B (since they are both ‘shared payment’ methods).

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