Retirement Options

Overview

Retirement Options

Your decision to retire will be based on your individual plans and goals. There are two decisions all prospective retirees make that warrant thoughtful consideration.

  1. You must review your choice of beneficiary. Your beneficiary is the person who will receive benefits from your retirement plan upon your death. If you are married, or in a registered domestic partnership, by law, your beneficiary must be your spouse or registered domestic partner unless you file a Spousal Waiver (Form 303). If you choose the Unmodified Option, or Option 1, you may change your beneficiary any time you wish, throughout your retirement. If you choose Option 2, 3, or 4, you may NOT change your beneficiary, even if the named person(s) dies before you.
     
  2. You must choose a retirement benefit option. The CERL has five options (methods of disbursing your retirement benefit payments).

Once your retirement application has been processed, CCCERA will send you an option election form along with a tax withholding form approximately 6 to 10 weeks after your retirement date. Your option election is irrevocable once your first payment has been issued. Make sure you understand these options completely before making this crucial choice.

The Unmodified Option

The unmodified option pays the highest monthly benefit to you. 

Upon your death after retirement, your eligible spouse or registered domestic partner will receive 60 percent of your monthly benefit for the rest of his or her lifetime. If you do not have an eligible spouse/registered domestic partner, but do have minor children, the 60 percent continuance is paid to them until the youngest (dependent, unmarried) child reaches age 18 (age 22 if a full-time student). If you do not have either an eligible spouse or dependent children, the balance of your contributions and interest remaining in your retirement account will be paid in a lump sum to your designated beneficiary.

Eligible spouses/domestic partners must have been married to you, or registered with the State of California as your domestic partner, at least one year prior to your retirement date or after retirement, have been married/registered as a domestic partner for at least two years prior to your death, and be at least 55 years old. 

Option 1

Option 1 reduces your monthly benefit, but potentially leaves a lump sum for your survivor.

This option reduces your monthly retirement benefit, in comparison to the Unmodified Option, in order to “save” some funds in your account for your surviving beneficiary. Option 1 pays a reduced monthly benefit until death of the member, then pays any remaining accumulated contributions to the member’s estate or survivor* in a lump sum.

Your retirement plan is a defined benefit plan, meaning your benefit is not based on your account balance. Your monthly benefit continues regardless of the balance in your account. However, benefit funds are partially drawn against your accrued contributions. Depending on the member’s lifespan, there may not be any contributions left at death for a survivor to collect. 

*Your beneficiary must have an insurable interest in your life. An insurable interest is defined as an interest based upon a reasonable expectation of pecuniary (financial) advantage through the continued life, health, or bodily safety of another person and consequent loss by reason of that person’s death or disability, or a substantial interest engendered by love and affection, as in the case of individuals closely related by blood or law.

NOTE: ALL FOUR OPTIONAL PROVISIONS REQUIRE THAT THE DESIGNATED BENEFICIARY BE A PERSON WITH AN INSURABLE INTEREST IN THE MEMBER’S LIFE.

Option 2

Option 2 reduces your monthly benefit, but provides the same monthly benefit for the lifetime of your survivor.

Option 2 reduces* your monthly retirement benefit, but after your death, pays the same reduced benefit to your named beneficiary for the rest of their lifetime. Trusts cannot be named as beneficiaries of this option; by 1937 Act statute, trusts may be named beneficiaries to lump sum payments only.

*The amount your monthly benefit is reduced depends on your age at retirement, the age of your beneficiary at your retirement date, and the life expectancy of both parties.

Option 3

Option 3 allows you to provide a monthly benefit to your beneficiary that is equal to 50% of the benefit you received during retirement. Your benefit reduction is based on the life expectancy of you and your beneficiary.

Option 3 reduces your monthly benefit, as compared to the Unmodified Option, but after your death pays 50% of the same reduced monthly retirement benefit to your beneficiary for the rest of their lifetime. Trusts cannot be named as beneficiaries of this option; by 1937 Act statute, trusts may be named as beneficiaries to lump sum payments only.

The amount of reduction for Option 2 and 3 is based on your age at retirement, the age of your beneficiary at your retirement date, and life expectancy of all parties.

Option 4

Option 4 allows you to make an election to receive a reduced retirement allowance during your lifetime, and to name one or more beneficiaries who would receive an allowance for their lifetime(s) upon your death. Your reduced allowance is calculated using your age at retirement and the age of your beneficiary. 

If one of your beneficiaries dies before you, the reduction to your retirement allowance remains in effect. You cannot name another beneficiary to receive the previous beneficiary’s portion of your monthly allowance.

Several conditions must be met to qualify for this option:

  • The election must be made in writing by the member.
  • The designated persons must have an “insurable interest” in the member’s life.
  • Total benefits must be the actuarial equivalent of an unmodifed retirement allowance.
  • The designations must not put any additional financial burden on the system.
  • CCCERA must consult with our actuaries, The Segal Company, to determine the benefit amounts and qualifications for each designated survivor.
  • The processing and approving of one request to estimate benefit allowances under Option 4 shall be processed free of charge to the member. Additional estimate requests requiring actuarial services to determine the benefit amount(s) and qualifications will be charged at $500.00 for each verification. (This fee provision, including the fee amount, is subject to change based on the Board’s determination of the financial and administrative burden to the system.)

As required by law, retirement benefit reduction factors are calculated using life expectancy estimates developed by licensed, professional actuaries, who specialize in retirement and benefit issues. For text of the Retirement Board’s Option 4 Policy, please Download the Optional Settlement policy PDF.

At retirement, each member and chosen beneficiary have specific, individual demographic information used to actuarially calculate the prospective reduced monthly benefits and potential survivor benefits associated with Options 2, 3 or 4. Therefore, without actual data, it is impossible to estimate what a given benefit may be for any option.
For more information about Retirement Options, Download the Optional Settlements PDF slides from a Board of Retirement educational presentation on Options, IRS benefit limitations (minimum distribution rules), and sample age difference calculations for non-spouse beneficiaries under specific option choices.

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