If you’re a public employee in California, you’ve probably heard about PEPRA—the Public Employees’ Pension Reform Act. Introduced in 2013, PEPRA brought significant changes to pensions for new and returning employees across the state, not just fresh hires. But what exactly is it, and how does it affect your pension?
Before diving into some examples, let’s explore why PEPRA exists and how it differs from older pension systems, like the 1939 County Act.
What Is PEPRA?
PEPRA was created in response to the growing costs of California’s pension system. As public employees enjoy longer lives, retire earlier, and receive larger pensions, the system needed to adapt to ensure its long-term sustainability. To address these changes, PEPRA introduced key reforms for public employees hired after January 1, 2013, as well as those returning to service after a break in employment, who are now shifted under PEPRA rules.
PEPRA made significant changes:
- lowered benefit factors
- raised retirement ages
- caps on final compensation
It's important to note that teachers and educators in California may be covered by CalSTRS (California State Teachers' Retirement System), which is separate from PEPRA. PEPRA doesn’t usually directly affect teachers. Other public workers like firefighters, police officers, and city employees fall under its jurisdiction.
Let’s break it down with some examples of public employees under PEPRA: Alex and Tom, who either joined after 2013 or returned to public service after a break.
The Pension Formula Under PEPRA
As with the previous system, pensions under PEPRA are calculated using a formula:
Years of Service × Benefit Factor × Final Compensation = Annual Pension
However, PEPRA lowered the Benefit Factors and put caps on Final Compensation, making pensions less generous compared to the old system.
Alex the City Planner
Alex started working as a city planner in 2005, but she left the job in 2011. After a break, she returned to public service in 2014, which means she’s now covered under PEPRA. She plans to retire in 2028 at age 62. Alex's situation is a little more complicated because she served 6 years under a classic formula and the remaining 14 years under PEPRA. She is eligible for both "2% at 55" (Classic) and "2% at 62" (PEPRA). Let's do the math:
Classic Service:
- Years of Service: 6 years
- Benefit Factor: 2.366%
- Final Compensation (1 year): $80,000
Pension from Classic service: $11,356.80
PEPRA Service:
- Years of Service: 14 years
- Benefit Factor: 2%
- Compensation (average highest 3 years): $75,000
Pension from PEPRA service: $21,000.00
Combined Pension = $11,356.80 + $21,000.00 = $32,356.80 per year
Alex will receive $32,356.80 annually with cost-of-living-adjustments (COLA) in retirement. As you may have noticed in the calculation:
- She can realize both PEPRA and Classic benefits. As long as her classic service is at least 5 years, she can receive classic benefits for that period of her compensation.
- She received higher than a 2% factor in her Classic service. Although the formula is called "2% at 55", the factor continues to increase if she delays her retirement, all the way to age 63.
- Final compensation was the last year for her Classic service and the average of the highest 3 years for her PEPRA service. This was to implemented in PEPRA to avoid compensation "spiking" in the last year.
Generally speaking, it benefits her to use as much of her Classic benefit if she can and to use PEPRA for the rest. This is because Classic benefits have higher factors and generally have higher final compensation numbers, which increases the overall calculation. She is still subject to other limits such as the caps on final pension (generally 100% of Classic pay or 120% of PEPRA pay), however as you may have noticed she is not close to hitting either of those caps.
The following for Tom is a more straightforward PEPRA calculation where he served all his time under PEPRA.
Tom the Police Officer
Tom worked as a police officer starting in 2015 and plans to retire in 2040 after 25 years of total service. He is serving under PEPRA for the whole time. He’s retiring at 57 with a final salary of $90,000. His benefit factor is 2.7% at 57.
- Years of Service: 25 years
- Benefit Factor: 2.7%
- Compensation (highest 3 years): $90,000
Tom’s pension calculation looks like this:
25 years × 2.7% × $90,000 = $60,750 per year
Tom will receive $60,750 annually in retirement. He is receiving about 68% of his highest average 3 years of salary. Unfortunately, he is not able to include certain amounts such as overtime salary into the salary number, which puts him at a disadvantage due to the high amount of overtime worked by police officers. He may be able to increase his final years of salary by through unused sick, vacation or holiday credits that he was unable to use throughout the year.
In Conclusion: PEPRA's Impact
For Alex, who returned to public service after 2013 and now falls under PEPRA, calculating pension benefits can be tricky. The switch from older rules to the more conservative PEPRA formulas can leave you wondering if you're getting the most out of your pension. Our pension calculator is designed to factor in these changes and find the best numbers to ensure you’re maximizing every dollar.
For Tom, who began his career after 2013, the challenges are different. With lower benefit factors and a three-year salary average for pension calculations, planning for retirement can feel daunting. Our pension calculator simplifies this process by taking into account all variables—whether it’s the age factor or the average salary—so you know exactly what to expect and how to plan.
At the heart of it, we focus on maximizing your available benefits. We don’t just show you what’s coming your way; we help you plan strategically, ensuring your retirement is as comfortable as possible. Our tool isn’t just about crunching numbers—it’s about giving you peace of mind, knowing you’ve done everything you can to secure your future.
Whether you're like Alex, Tom, or someone in between, our Advanced Pension Calculator ensures you’re getting the most accurate, personalized results. It's not just about navigating the PEPRA landscape—it's about thriving in it.