SECTION 6 Additional Impacting Factors
COLA
California law mandates that each year, prior to April 1, the Board of Retirement will determine whether there has been an increase or decrease in the cost-of-living, as reflected in the Bureau of Labor Statistics Consumer Price Index (CPI) for All Urban Consumers in the Los Angeles-Anaheim-Riverside area.
If the CPI has increased, the Board grants a cost-of-living adjustment (COLA) increase for monthly retirement and survivor allowances. The maximum allowable annual increase for Plan E is 2.0 percent.
In the event the CPI has decreased, it is possible for the Board to apply a COLA decrease. However, in the event a cost-of-living decrease is ever required, it may not reduce a member's allowance to an amount less than the allowance received at the time of retirement. Only past COLA increases could ever be subject to a decrease.
Plan E COLA (Automatic COLA) applies to service credit earned on and after June 4, 2002. Plan E members with retirement dates after June 4, 2002 are eligible to receive up to a 2 percent COLA increase. COLA adjustments for members with service credit earned prior to June 4, 2002 are based on a ratio of months of service earned after June 4, 2002 divided by the total months of service.
Members hired on or after June 4, 2002 are eligible to receive a COLA adjustment based on all their earned service credit.
Elective COLA
Some Plan E members with service credit earned prior to June 4, 2002 can make a greater portion of their retirement allowance eligible for COLA adjustments through the purchase of Elective COLA.
Elective COLA Eligibility:
- Active Plan E member with service credit earned prior to June 4, 2002
- Vested Plan E member with service credit earned prior to June 4, 2002 who terminated, returned to County employment, and elected Plan E
The Elective COLA benefit is granted by the BOR based on the CPI, in the same manner as Automatic COLA, with the same survivor benefit; it is also subject to the same 2 percent maximum allowable adjustment.
Purchasing Elective COLA
The cost to purchase COLA is based on the estimated cost of the future Elective COLA benefit. By law, Elective COLA must not place any additional burden on the retirement system; therefore, the member must pay the entire cost.
At the time of purchase, LACERA will project the cost of your Elective COLA based on:
- Your current pensionable earnings
- Your current age
- Years of service
- Spouse or domestic partner's age (if applicable)
- Actuarial assumptions for:
- Increases to your pensionable earnings
- Retirement at age 65
- Life expectancy for member and spouse or domestic partner
- Any years of service covered by Social Security
- Unmodified Retirement Option
A contract to purchase Elective COLA may be paid in a single lump-sum payment or through monthly deductions over a period ranging from one to 120 months (ten years) or through a combination of both.
At retirement, LACERA will use your actual retirement factors to recalculate the cost of your Elective COLA purchase. Any difference between the final calculation and the initial projection will determine whether you owe a balance to LACERA or LACERA owes you a partial refund.
Note: Elective COLA may not benefit everyone. Since the cost for Elective COLA is based, in part, on actuarial assumptions for life expectancy and annual inflation, if you don't reach the actuarially-projected life expectancy or if inflation is lower than the assumption, you may not recover your total Elective COLA purchase cost. For more details on Elective COLA, call 1-800-786-6464 to speak with a LACERA Retirement Benefits Specialist.
Social Security
The County withdrew its employees from the federal Social Security program on December 31, 1982. If you became a County employee before January 1983 and/or you worked at other jobs where you contributed to Social Security, you may be entitled to a Social Security benefit upon retirement. However, be aware in some cases Social Security can affect your LACERA retirement allowance and vice versa.
Plan E members who worked for the County prior to January 1983 will have a percentage of their estimated Social Security benefit subtracted from their LACERA retirement allowance. The percentage is based on their total number of years and months of pre-1983 County service that was covered by Social Security.
Note: Generally, it is advantageous for a Plan E member who retires at age 62 (or older) to provide LACERA with a copy of his or her actual Social Security benefit within six months following his or her effective retirement date. In such cases, LACERA will adjust the reduction to the member's allowance to reflect the actual amount of the Social Security benefit. This often results in an increase to the member's allowance.
The Windfall Elimination Provision and the Government Pension Offset are federal laws that impact Social Security benefits for some individuals receiving government pensions.
Windfall Elimination Provision
The Windfall Elimination Provision (WEP) reduces the Social Security benefit for retired and disabled workers receiving government pensions from employment not covered by Social Security. Basically, the Social Security Administration uses a different (less favorable) formula to calculate a worker's benefit under the WEP than it does to calculate the benefit of a worker who is not affected by the WEP. The WEP formula includes a sliding scale based on the length of your Social Security-covered employment. If you have 30 or more years of “substantial earnings“ under Social Security, you are fully exempt from the WEP.
Government Pension Offset
The Government Pension Offset (GPO) affects spouses, widows, and widowers. Under the GPO, if you receive a LACERA pension (based on work when you did not pay Social Security taxes), your Social Security spouse's, widow's, or widower's benefits may be reduced by an amount equal to two-thirds of your LACERA pension.
For more information and specifics of how the GPO and the WEP may apply to your individual situation, contact the Social Security Administration at 1-800-772-1213.
Taxability
Your LACERA retirement allowance is subject to both federal and California state income tax.* Withholding tax is based on the gross amount of your service retirement allowance.** You may elect to have federal or state tax withheld from your retirement allowance at whatever rate you choose—or to have no tax withheld—by submitting a W-4P/DE4-P Tax Withholding Form to LACERA. If you do not complete this tax form, your allowance will be taxed as if you were a married person claiming three (3) withholding exemptions.
*Certain exceptions may apply.
**In compliance with federal law, California income tax is not withheld from your retirement allowance if you reside outside of California.
Dissolution of Marriage (Divorce)
Active and Retired Members
If your marriage is dissolved, you must contact LACERA promptly to update your records.
Documents You Must Provide:
- Judgment of Dissolution
- Domestic Relations Order (DRO) or Qualified Domestic Relations Order (QDRO), if the judgment requires
- Notice of Entry of Final Judgment (if applicable)
You must provide LACERA with a conformed copy (with the court clerk's filing date stamp and the judge's signature) of all the pages of your Judgment of Dissolution. If the judgment states a further order is required, provide LACERA copies of a DRO or a QDRO. If you are unsure about the need for additional documents, LACERA's Legal Division will review the judgment to ascertain if an additional order is required. If your dissolution occurred after 1984, you must also submit a copy of your Notice of Entry of Final Judgment.
Active Members
If you are an active member, failure to provide LACERA with the required documents may result in a delay of your retirement benefits.
Upon legal notice that a member's benefit is subject to a division of community property and an additional court order is required, LACERA must place a legal hold on the member's account. A member who has contributions on deposit may not withdraw them while a legal hold is in effect. The hold will remain on the member's account until retirement (and will appear on the member's Annual Benefit Statement), even if LACERA receives an appropriate court order.
If you are in the process of a divorce at the time of retirement, LACERA cannot pay your retirement allowance until the Judgment of Dissolution of Marriage is final and a court order directing the community property division of your LACERA benefits is received.
Beneficiary Eligibility: Ex-Spouse
If you divorced on or after January 1, 2002, your ex-spouse is not eligible for any benefit upon your death unless payment is mandated by court order or you designate your ex-spouse as beneficiary after the divorce. If you divorced before January 1, 2002 and your ex-spouse is your primary beneficiary at the time of your death, he or she would be eligible for a lump-sum death benefit, if applicable.
Active Plan E members may change their beneficiary designation at any time prior to retirement.
Retired Members
LACERA is bound by certain legal restrictions in paying retirement benefits when a divorce is pending.
If you divorce after retirement, LACERA will continue paying your full monthly allowance pending receipt of the documents referenced in this section.
Beneficiary Eligibility: Ex-Spouse
An ex-spouse is not an eligible surviving spouse and is not eligible to receive a monthly continuing allowance under the Unmodified Retirement Option, even if he or she is named as beneficiary after the divorce. An ex-spouse would be eligible to receive a community property portion of a lump-sum benefit, if applicable.
If you named your spouse as a beneficiary at retirement under Option 2, 3, or 4 and later divorce, he or she will receive a monthly continuing allowance after your death.
Garnishment
In general, a member's retirement allowance is not subject to garnishment or other levies except as follows:
- A court may order LACERA to pay a portion of a member's retirement allowance to satisfy a judgment for spousal or child support or a division of community property.
- A member's retirement allowance is subject to a tax levy by the IRS or the California Franchise Tax Board for payment of delinquent federal or state income tax.
Your Records Are Confidential
In keeping with provisions set forth in CERL, the individual records of members remain confidential and may not be disclosed to anyone other than the member. Exceptions provided in the law also allow disclosure as necessary in the administration of the retirement system, upon order of a court of competent jurisdiction, or upon the member's written authorization.
6/16/09