Clear Money Guide
What this guide covers
A quick view of the questions and evidence developed below.
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Updated August 19, 2026. Quick answer: California Public Employees’ Retirement System (CalPERS) — the COLA is automatic, and it compounds, service credit can be purchased, and no DROP was found. Vesting takes five years of service credit. The four decisions below are the ones that are hard to reverse.
Provisional. This page is published at medium confidence. The specific points that could not be confirmed are listed under What could not be verified below, and are named rather than smoothed over.
The verdicts
| Is the COLA granted? | Automatic |
|---|---|
| Is the COLA compounded? | Compounded |
| Vesting | CalPERS: ‘you can retire as early as age 50 with five years of service credit unless all service was earned on or after January 1, 2013. Then you must be at least age 52 to retire.’ Some exceptions exist for part-time employees and reciprocal-system members (site advises contacting CalPERS for specifics). Disability retirement generally also requires five years (ten for Second Tier); industrial disability retirement has no vesting requirement (‘None’). |
| Buy service credit? | Yes |
| DROP? | None found |
| State | California |
Those first two rows are separate questions and are routinely confused. Whether you get an increase at all is one thing; whether it compounds is another. A system can grant an increase automatically every year and still compute it against your original pension forever, which is a materially worse deal than it sounds.
The COLA
Automatic annual COLA beginning the second calendar year after retirement. Actual COLA paid each year = lesser of actual CPI inflation or the employer’s contracted cap; the cap itself compounds annually per statute language (Gov. Code §21335: ‘increased … percent per year compounded’). State and school employers standardly contract for a 2% cap; local public agencies can contract for 2%, 3%, 4%, or 5% (agency-selected). No adjustment applied if it would be less than 1%; benefit can never be reduced below the base allowance. When inflation exceeds the cap, a separate Purchasing Power Protection Allowance (PPPA) may apply. CalPERS’s own page cites 2025 actual inflation at 2.63% as a worked example (year-labeled).
Buying service credit
‘Airtime’ (Additional Retirement Service Credit/ARSC) was eliminated by PEPRA effective 1/1/2013 and is no longer purchasable by anyone. Payment via lump sum (myCalPERS: card, bank account, or plan rollover), installments via payroll deduction (up to 180 pay periods, $15/month minimum), or plan-to-plan transfer/rollover from 401(a), 401(k), 403(a), 403(b), governmental 457, traditional IRA, SEP IRA, Keogh IRA, or conduit IRA. Roth IRAs are explicitly NOT eligible.
What it costs. Two methods depending on category: ‘Present Value Method’ (based on ‘your highest monthly full-time pay rate,’ ‘estimated future final compensation,’ and ‘projected retirement benefit increase’) or ‘Pay and Contribution Rate Method’ (based on ‘your pay rate and the contribution rate on the date you became a CalPERS member’). Redeposits of withdrawn contributions are costed as the ‘withdrawal plus interest (compounded annually).’
Run your own numbers before deciding — some purchases never recover their cost, and the calculator shows which.
Taking a refund
CalPERS, verbatim: ‘Employer contributions aren’t refundable’ (they fund a separate pool for pensions/survivor benefits), and ‘Taking a refund terminates your CalPERS membership and you forfeit your right to future benefits … you lose the right to receive a service or disability retirement benefit, and your beneficiaries won’t be eligible for any survivor benefits.’ Retiree-health forfeiture was not explicitly stated on the page reviewed (plausible, unconfirmed). Redeposit/reinstatement is possible on return to CalPERS or reciprocal CA public employment, but ‘cost will be higher than the amount of your refund and will increase over time due to interest’ — exact formula/rate not stated in the source reviewed (unconfirmed).
This is the irreversible one. Refund versus leaving it in sets out the decision in the order it should be made.
DROP
No DROP program found in the complete chapter/article table of contents of the Public Employees’ Retirement Law (Gov. Code Div. 5, Part 3, Ch. 1-19, §20000-21716) — an absence-of-evidence finding from a structured statute scan, not a direct CalPERS statement denying a DROP. No calpers.ca.gov page explicitly confirming ‘no DROP’ could be located (several guessed FAQ/glossary URLs 404’d).
This is an absence-of-evidence finding: it means a DROP does not appear in the materials reviewed, not that the system has published a denial. DROP is rarer than it appears — of the twelve systems checked for this guide, only one has an active programme.
What could not be verified
SURVIVOR OPTIONS / IRREVOCABILITY (not captured by this schema’s fields — flagging because the source task identified this as one of the two highest-stakes facts): Gov. Code §§21453/21472 make the optional-settlement (survivor) election irrevocable after a 30-calendar-day window following the FIRST retirement payment, for both pre- and post-1/1/2018 retirees. Narrow statutory exception: §21473 allows modification upon dissolution of marriage, legal separation, or annulment. Survivor options reduce the member’s own lifetime allowance by an actuarial adjustment (Gov. Code §21456 describes the mechanic for ‘Optional Settlement 2’ specifically; exact formula not published in the statute text reviewed). The complete numbered menu of option types was not fully verified (not every section of Ch.13 Art.6/7 was read). No CalPERS-authored consumer page on survivor options/irrevocability could be located; this finding rests on statute only.
These gaps are stated because a plan-rule page that hides its own limits is worse than no page. Your member handbook is the authority, and where it and this page disagree, the handbook wins.
Sources
Read 2026-08-04.
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Related: buyback calculator · is buying service credit worth it · refund or leave it in · DROP explained.
General information drawn from IRS, Medicare, HUD and state statute and regulation, not legal, tax or financial advice. Continuing-care law is state law and differs materially between states; every figure here is year-labelled and every source named. Powers of attorney, guardianship and trusts are governed by STATE law and differ change, and interest rates published by the IRS change every month – never rely on a rate quoted on any page, including this one. We are not a law firm or a tax adviser, and this is not legal or tax advice.