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CalPERS explains options when members separate from a CalPERS-covered employer
Summary
The presentation outlined choices for members who leave a CalPERS-covered employer — leave funds on deposit (preserve membership and potential reciprocity), request a refund (with tax and penalty implications), or roll over funds to another eligible retirement plan.
CalPERS presented options members have when they separate from a CalPERS-covered employer. Presenter Raquel Lozano said members can leave their funds on deposit with CalPERS, preserving membership and allowing continued interest accrual; leaving funds on deposit also preserves the possibility of reciprocity with other California public retirement systems if the employer participates.
Why it matters: Each option affects future retirement eligibility, tax treatment, and benefit amounts. Lozano said a refund (in-hand distribution) returns contributions and interest but terminates CalPERS membership and carries tax consequences: a 20% mandatory federal withholding, optional 2% California state withholding, and, if the member is under age 59, a 10% federal early-withdrawal penalty and a 2.5% state penalty. To avoid those taxes and penalties, members may roll funds over to an eligible retirement plan such as an IRA.
CalPERS advised members that reciprocity requires retiring from both systems to receive the full benefit of reciprocity and directed members to Publication 16 for a list of reciprocal systems. Lozano said members receive a letter on separation explaining options and encouraged members to visit the CalPERS website for details and to use online rollover resources.
