Pension - Payment Options

How Your Pension Will Be Paid

When you make a decision to retire, you will be asked to choose the way you want your pension to be paid beginning on your pension effective date (also called “Annuity Starting Date”).  The forms of payment available are described in this Section.  Prior to your making a decision concerning how you wish to have your pension paid, the Administrative Office can provide comparisons of benefits payable under the various available options.

 

Standard Form If You Are Single

If you are unmarried when your pension begins, you will receive equal monthly payments for your lifetime (life annuity) with no further payment due any party after your death.

If you are married, you may receive benefits under this payment form if both you and your spouse waive payment under the 50% Spousal Pension as described below.

 

Standard Form If You Are Married

If you are married when your pension begins, the standard form of payment will be a 50% Spousal Pension.  This payment form provides you with a reduced monthly pension during your lifetime; then, if you die prior to your spouse, your spouse will receive 50% of the pension you were receiving at the time of your death.  The amount of the reduction in your benefit depends upon the difference in age between you and your spouse.

  • For example: Let’s assume that you are retiring at age 65. Your spouse is also 65 years old. Your Regular Pension is $1,000 a month. This amount is reduced, however, to provide a potential survivor benefit to your spouse. You will receive $890 for as long as you live. If you die prior to your spouse, your spouse will receive 50% of your pension, or $445 for as long as your spouse lives. If your spouse dies prior to you, your Regular Pension remains at $890 – even though there will no longer be any survivor benefit.

Some Important Facts Concerning the Spousal Pension

  • The Spousal Pension may be rejected in favor of another payment form. In order to reject the Spousal Pension, both you and your spouse must receive payment form information from the Plan and sign waiver forms provided by the Administrative Office no earlier the 180-day period preceding your Annuity Starting Date. The signatures must be witnessed by a Notary Public.  Your spouse’s consent is not required if you select the 100% or 75% Survivor Options, described further below.

You will receive information at the time of retirement that will include a document showing a comparison   of the relative actuarial values of the Plan’s available payment forms.  You and/or your spouse may elect or reject the Spousal Pension any number of times during the 180 day period preceding your Annuity Starting Date. In any event, you will have at least 30 days after the Administrative Office provides you with this document to make your decision.

  • The Spousal Pension will not be paid to your surviving spouse if you were not married on your Annuity Starting Date and if you have not been married to each other for at least one year at the time of your death.
  • Once benefit payments begin, the Spousal Pension cannot be cancelled or your benefits increased because of a subsequent divorce or your spouse predeceasing you.
  • The rights of a former spouse or other family member as outlined in a Qualified Domestic Relations Order (commonly called a “QDRO”) may reduce or eliminate benefits due to the current spouse.

The Spousal Pension is not payable if you and your spouse have rejected it in favor of the life annuity, 100% or 75% Survivor Options.

Your retirement pension will be paid according to the standard form that applies to you unless you and your spouse (if applicable) decide otherwise and file the appropriate election/rejection form(s) prior to your Annuity Starting Date.

 

100% and 75% Survivor Options

The Pension Plan also has 75% and 100% Survivor Options.  These payment forms operate in the same manner as the Plan’s Spousal Pension, except that your surviving spouse will receive 75% or 100% (whichever is applicable) of your adjusted monthly benefit for the rest of her life. Because the percentage continuation is higher than under the Spousal Pension, there will be a greater reduction in the amount of pension that you will receive while you are alive.

  • For example: Let’s assume that you are retiring at age 65. Your spouse is also 65 years old. Your Regular Pension is $1,000 a month. This amount is reduced, however, to provide protection for your spouse. If you elect the 75% Survivor Option, you will receive $845 for as long as you live.  If you die prior to your spouse, your spouse will receive $634.00 (rounded up) for the rest of your spouse’s life. If you die prior to your spouse, your Regular Pension remains at $845 – even though there will no longer be any survivor benefit.
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  • If you instead elected the 100% Survivor Option, you would receive $800 while alive and, if you are survived by your spouse, your spouse would receive the same $800 for your spouse’s lifetime. Again, if you die prior to your spouse, your Regular Pension remains at $800 – even though there will no longer be any survivor benefit.

The rules below that apply to the 100% and 75% Survivor Options are similar to those associated with the Spousal Pension.

 

Some Important Facts Concerning the 100% and 75% Survivor Options

    • The 100% and 75% Survivor Options are available only if you are married and you and your spouse reject the Spousal Pension in favor of one of these two payment forms. You will receive information at the time of retirement that will include a document showing a comparison of the relative actuarial values of the Plan’s available payment forms.

 

    • Neither the 100% nor 75% Survivor Options will be paid to your surviving spouse if you were not married on your Annuity Starting Date and if you have not been married to each other for at least one year at the time of your death.

 

    • Once benefit payments begin, the 100% or 75% Survivor Options cannot be cancelled or your benefits increased because of a subsequent divorce or your spouse predeceasing you.

 

    • The rights of a former spouse or other family member as outlined in a Qualified Domestic Relations Order (commonly called a “QDRO”) may reduce or eliminate benefits due to the current spouse.

 

Lump Sum Payment of Benefits – “Cashout”

If you, your spouse or other payee are entitled to pension benefits whose actuarial present value is $1,000 or less, the Board of Trustees shall pay the benefit in a single lump sum payment.

If the present value of the benefit is at least $1,000, but not greater than $5,000, the Board of Trustees shall pay the benefit in a single lump sum payment only if you and your spouse (if you are married) consent to payment in this form. Such payment would represent your full entitlement to benefits under the Plan and you will cease to be a Participant at that time.

 

Federal Income Tax Withholding

Federal Income Taxes will be automatically withheld from any benefits paid by the Plan (which exceed the no withholding limits established by the IRS) unless you elect not to have income taxes withheld.  You will be given complete information and the opportunity to elect or reject withholding when you apply for benefits.

IRS Form W-4P

 

Rollover Distributions

In addition, the Unemployment Compensation Amendments of 1992 as amended, requires that if you, your spouse or non-spouses beneficiary are receiving certain types of benefits from the Plan (called “eligible rollovers”), 20% must be withheld for income tax purposes.  These types of benefits include lump sums or installment payments over a period of less than 10 years.  However, these types of benefits are also eligible for direct “rollover” into an Individual Retirement Account (IRA) or other tax-exempt retirement plan.  If you rollover your benefits directly into an IRA or another retirement plan, the 20% withholding is not mandatory. You will be provided with information concerning your rollover rights at the time of your retirement.

Rollover Notice

State Income Tax Withholding

State Income Taxes will be automatically withheld from any benefits paid by the Plan, which exceed the limits established by the California Franchise Tax Board, unless you elect not to have income taxes withheld.  You will be given complete information and the opportunity to elect or reject withholding when you apply for benefits.

State of California Form DE-4P

 

Notice of Early Distribution Penalty

Federal law known as the “Tax Reform Act of 1986” imposes a 10% excise tax penalty upon early distributions from the Pension Plan.  This amount is in addition to any ordinary income tax due.  Unless you satisfy one of the exceptions shown below, payment of your pension following a separation from service that occurs before you reach age 59½ will be subject to this additional 10% tax.

  • Payment in the form of a life annuity (including a joint and survivor annuity) following separation from service;
  • Payment to a Participant who is at least age 55 made in accordance with the Plan’s early retirement provisions;
  • Payment made due to a Participant’s death or disability, or to an alternate payee as decreed by a qualified domestic relations order (commonly called a “QDRO”); or
  • Payment made to a Participant used to pay medical expenses otherwise deductible under Internal Revenue Code Section 213.

IMPORTANT

In order to determine which tax laws apply to your individual situation, it is best to seek the advice of a tax professional.  The Administrative Office cannot provide professional tax advice.