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.
More on public pension systems, topic by topic: LACERS service credit purchases, LACERS early service retirement and LACERS disability retirement.
Estimate a CalSTRS benefit from age, service credit and final compensation: CalSTRS retirement calculator.
Put your own numbers through the CalPERS formula: CalPERS retirement calculator.
Two more California systems with their own decision pages, OCERS and LACERS: OCERS retirement decisions and LACERS retirement decisions.
A different California system, the University of California Retirement Plan, has its own decision page: UCRP retirement decisions.
A Los Angeles County system with its own decision page: LACERA retirement decisions.
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.
Payment options and the survivor election
CalPERS treats the payment option as the choice that decides what, if anything, continues after death. Its myCalPERS guide says: “You determine what benefits or continuing monthly payments will be payable after your death” by choosing an option and naming a beneficiary. The estimate guide adds that the member “must select a payment option when you submit your retirement application”.
Two words are easy to confuse. CalPERS says “A beneficiary can be anyone you choose”, while “A survivor is defined by law”. The survivor and beneficiary can be the same person, but do not have to be.
The menu of options
The unmodified allowance is described this way: it “provides the highest monthly allowance paid for life”. With it there is “no continuing monthly benefit to a beneficiary”. Every other option is a cut from that figure, and the guide says “All subsequent options are a reduction from the Unmodified Allowance”.
- Return of Remaining Contributions: a slightly lower monthly allowance, and any unused member contributions go to one or more beneficiaries in a lump sum, with no continuing monthly allowance for them.
- 100 Percent Beneficiary: a lower allowance than the previous option, and one beneficiary receives 100% of the member’s lifetime monthly allowance after death.
- 100 Percent Beneficiary with Allowance Increase: lower again while both are alive, but if the beneficiary dies first the member’s allowance goes back up to the unmodified allowance.
- 50 Percent Beneficiary: a higher allowance than either 100% option, with 50% of the option portion of the monthly benefit continuing to one beneficiary.
- 50 Percent Beneficiary with Allowance Increase: lower than the plain 50 Percent option, with the same return to the unmodified allowance.
- Flexible Beneficiary: a lifetime allowance of a chosen dollar amount or percentage of the unmodified allowance for one or more beneficiaries.
What the reduction depends on: “This reduction for a lifetime monthly benefit is based on actuarial factors”, using the ages of both member and beneficiary at retirement. In the guide’s words, “The younger your beneficiary, the greater the reduction”. The pages read give no factor table, so no worked example is shown here.
Survivor continuance is a separate benefit
CalPERS describes survivor continuance as “an employer-paid monthly benefit payable after your death in retirement to an eligible survivor”. It is provided by law to state and school members, and public agency employers must contract for it. Its size is tied to Social Security: 25% of the unmodified allowance if the member paid into Social Security, or 50% if not. The estimate guide states: “The amount your survivor receives upon your death is the same no matter what retirement option you choose”.
The window to change the election
CalPERS says a member who changes their mind “can do so within 30 days from when your first retirement check” is issued (the payment option, lifetime beneficiary or retirement date). Then: “After 30 days, your lifetime beneficiary, payment option, and retirement date become irrevocable”. Afterwards a change is possible only with a qualifying event, such as the death of the beneficiary, getting married, or entering a domestic partnership after retirement.
| Item | What continues or applies | Effect on the member’s allowance or timing |
|---|---|---|
| Return of Remaining Contributions | Lump sum of unused contributions | Slightly lower than unmodified |
| 100 Percent Beneficiary | 100% of the lifetime allowance to one beneficiary | Lower than Return of Remaining Contributions |
| 50 Percent Beneficiary | 50% of the option portion to one beneficiary | Higher than both 100% options |
| Survivor continuance (state and school) | 25% or 50% of unmodified allowance | Employer-paid, not set by the option |
| Change window | 30 days from first retirement check | Irrevocable afterwards |
What the pages read do not state: the actuarial factor tables behind each reduction, the percentage by which any option cuts the allowance for a given age pair, and the full list of qualifying events beyond the examples above.
Sources for this section:
- CalPERS, myCalPERS and Your Retirement Options (December 2025): https://www.calpers.ca.gov/sources/member/CBEE/digital_class_notes_and_resources/myCalPERS_and_Your_Retirement_Options.pdf
- CalPERS, Your Retirement Estimate and Payment Options (March 2023): https://www.calpers.ca.gov/content/cec/member/webcast_learning_guides/Your_Retirement_Estimate_and_Payment_Options.pdf
What could not be verified
The survivor options and the 30-day change window are reported above as CalPERS’s own member guides state them. The statute adds detail the guides do not restate. Gov. Code §§21453 and 21472 make the optional-settlement (survivor) election irrevocable after a 30-calendar-day window following the first retirement payment, for retirees before and after 1/1/2018. §21473 allows one narrow modification, on dissolution of marriage, legal separation or annulment. Survivor options reduce the member’s own lifetime allowance by an actuarial adjustment; §21456 describes the mechanic for “Optional Settlement 2” specifically, and the exact formula is not published in the statute text reviewed. The menu of options above comes from the CalPERS guides, not from a full read of every section of Chapter 13, Articles 6 and 7.
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.
The same COLA, vesting and buyback questions, other systems: North Carolina TSERS, Oklahoma OPERS, Oregon PERS, South Carolina SCRS, Tennessee TCRS, Oklahoma TRS and Virginia VRS.