CalPERS & CalSTRS — System Overview
Two of the largest public pension systems in the United States. Both are defined benefit plans — lifetime income guaranteed by the fund. Understanding which system and tier determines everything about the benefit calculation.
Side-by-Side System Comparison
Feature
CalPERS
CalSTRS (2% at 60)
CalSTRS (2% at 62)
Who It Covers
State, school & public agency employees; not certificated K-12 teachers
Certificated K-12 educators, community college faculty, hired on/before Dec 31, 2012
Certificated K-12 educators hired on/after Jan 1, 2013
Benefit Formula
Age Factor × Years of Service × Final Compensation
Age Factor × Service Credit × Final Compensation
Age Factor × Service Credit × Final Compensation
Named Age Factor
Varies by tier (2% at 55 / 60 / 62)
2% at age 60
2% at age 62
Max Factor
2.418% (Misc Classic) / 2.5% (PEPRA)
2.418% at 63+ (2.4% w/ career factor)
2.4% at 65+
Career Factor Boost
None
+0.2% with ≥30 yrs, max 2.4%
Not available
Final Comp (Classic)
Highest 12 consecutive months
Highest 12 consecutive months
Highest 36 months
Min Retirement Age
50 (Classic Misc) / 52 (PEPRA Misc)
50 (30+ yrs) / 55 (5+ yrs)
55
COLA Type
2% compounding (most agencies)
2% simple (of original benefit)
2% simple (of original benefit)
Purchasing Power Floor
PPPA
SBMA (85% of initial benefit)
SBMA (85% of initial benefit)
Survivor Continuance
Yes — employer-paid; 25% or 50% of unmodified allowance
Options at retirement only; no employer-paid continuance
Options at retirement only
Social Security
Varies — some participate, others do not
Most do not participate in SS
Most do not participate in SS
Total Assets (2025)
~$599.5B
~$340B+
Shared fund
Funded Status
~83.7%
~75.9% (2024)
Shared fund
How to identify a client's tier: For CalPERS members, check myCalPERS or their Annual Member Statement — it lists the retirement formula explicitly. For CalSTRS, check the Retirement Progress Report in myCalSTRS.
Benefit Factor Tables
The age factor (per-year multiplier) increases with retirement age. Monthly benefit = Age Factor% × Years of Service × Final Average Compensation.
How to read: Find the retirement age, read the per-year factor, multiply by years of service. Example: CalPERS 2% at 60, age 58, 25 years → 1.758% × 25 = 43.95% of FAC annually.
CalPERS Miscellaneous Classic — 2% at 55
Pre-Jan 15, 2011 · Min age 50 · FAC: Best 12 months
| Row | 50 | 51 | 52 | 53 | 54 | 55★ | 56 | 57 | 58+ |
|---|
| Factor / Yr | 1.460% | 1.552% | 1.650% | 1.758% | 1.874% | 2.000% | 2.134% | 2.272% | 2.418% |
| 30-Yr Benefit | 43.80% | 46.56% | 49.50% | 52.74% | 56.22% | 60.00% | 64.02% | 68.16% | 72.54% |
CalPERS Miscellaneous Classic — 2% at 60
Jan 15, 2011 – Dec 31, 2012 · Min age 50 · FAC: Best 12 months
| Row | 50 | 51 | 52 | 53 | 54 | 55 | 56 | 57 | 58 | 59 | 60★ | 61 | 62 | 63+ |
|---|
| Factor / Yr | 1.092% | 1.156% | 1.224% | 1.296% | 1.376% | 1.460% | 1.552% | 1.650% | 1.758% | 1.874% | 2.000% | 2.134% | 2.272% | 2.418% |
| 30-Yr Benefit | 32.76% | 34.68% | 36.72% | 38.88% | 41.28% | 43.80% | 46.56% | 49.50% | 52.74% | 56.22% | 60.00% | 64.02% | 68.16% | 72.54% |
CalPERS Miscellaneous PEPRA — 2% at 62
On/after Jan 1, 2013 · Min age 52 · FAC: Best 36 months · Max age 67
| Row | 52 | 53 | 54 | 55 | 56 | 57 | 58 | 59 | 60 | 61 | 62★ | 63 | 64 | 65 | 66 | 67 |
|---|
| Factor / Yr | 1.000% | 1.100% | 1.200% | 1.300% | 1.400% | 1.500% | 1.600% | 1.700% | 1.800% | 1.900% | 2.000% | 2.100% | 2.200% | 2.300% | 2.400% | 2.500% |
| 30-Yr Benefit | 30.0% | 33.0% | 36.0% | 39.0% | 42.0% | 45.0% | 48.0% | 51.0% | 54.0% | 57.0% | 60.0% | 63.0% | 66.0% | 69.0% | 72.0% | 75.0% |
CalSTRS DB Program — 2% at 60 (pre-2013)
Hired on/before Dec 31, 2012 · FAC: Best 12 months · Career factor available
| Row | 50 | 51 | 52 | 53 | 54 | 55 | 56 | 57 | 58 | 59 | 60★ | 61 | 62 | 63+ |
|---|
| Factor / Yr | 1.092% | 1.156% | 1.224% | 1.296% | 1.376% | 1.460% | 1.552% | 1.650% | 1.758% | 1.874% | 2.000% | 2.134% | 2.272% | 2.418% |
| w/ Career Factor† | 1.292% | 1.356% | 1.424% | 1.496% | 1.576% | 1.660% | 1.752% | 1.850% | 1.958% | 2.074% | 2.200% | 2.334% | 2.400% | 2.400% |
| 30-Yr + Career Factor | 38.76% | 40.68% | 42.72% | 44.88% | 47.28% | 49.80% | 52.56% | 55.50% | 58.74% | 62.22% | 66.00% | 70.02% | 72.00% | 72.00% |
† Career factor (+0.2%) available only to 2% at 60 members with ≥30 years — capped at 2.4%.
CalSTRS DB Program — 2% at 62 (PEPRA 2013+)
Hired on/after Jan 1, 2013 · Min age 55 · FAC: Best 36 months · No career factor
| Row | 55 | 56 | 57 | 58 | 59 | 60 | 61 | 62★ | 63 | 64 | 65+ |
|---|
| Factor / Yr | 1.160% | 1.280% | 1.400% | 1.520% | 1.640% | 1.760% | 1.880% | 2.000% | 2.080% | 2.160% | 2.400% |
| 30-Yr Benefit | 34.80% | 38.40% | 42.00% | 45.60% | 49.20% | 52.80% | 56.40% | 60.00% | 62.40% | 64.80% | 72.00% |
Classic vs. PEPRA
The Public Employees' Pension Reform Act of 2013 fundamentally restructured California's public pension systems for new hires effective January 1, 2013.
What is PEPRA?
PEPRA (Public Employees' Pension Reform Act) was enacted to address rising pension costs. Any employee who became a "new member" of a public retirement system on or after January 1, 2013 is subject to PEPRA. At CalPERS, PEPRA general members are in the 2% at 62 tier. At CalSTRS, they're in the CalSTRS 2% at 62 structure.
Higher Min. Retirement Age
CalPERS misc: 52 (vs. 50 Classic). CalSTRS: 55 (vs. 50/55 depending on service).
Lower / Later Peak Factor
CalPERS PEPRA max: 2.5% at 67. CalSTRS PEPRA max: 2.4% at 65. Classic tops out earlier.
36-Month FAC
PEPRA uses highest average over 36 consecutive months vs. best 12 months for Classic.
50/50 Cost Sharing
PEPRA members must pay 50% of the normal cost of their pension annually.
Compensation Cap
2025: $155,081 (SS) / $186,096 (non-SS). Classic cap: $350,000.
Anti-Spiking Rules
Overtime, terminal pay & unused vacation excluded from pensionable compensation.
Who Is Classic vs. PEPRA
Classic Member: An employee who was already a member of a California public retirement system before January 1, 2013, or who had a break in service of less than 6 months before joining a new public agency.
New Member (PEPRA): Anyone who joined a California public retirement system for the first time on or after January 1, 2013, or who had a break in service of more than 6 months.
Reciprocity: A Classic member who moves between California public employers within 180 days retains Classic status. Critical retention talking point for clients considering leaving public employment.
Key Differences Side-by-Side
CalPERS Classic 2% at 60 (Misc)
Age factor at 55: 1.460% / yr
Age factor at 60: 2.000% / yr
Peak factor: 2.418% at age 63+
Min retirement age: 50
FAC: Best 12 months
Comp cap: $350,000
30-yr benefit at 60: 60.00% of FAC
CalPERS PEPRA 2% at 62 (Misc)
Age factor at 55: 1.300% / yr
Age factor at 62: 2.000% / yr
Peak factor: 2.500% at age 67
Min retirement age: 52
FAC: Best 36 months
Comp cap: $155K–$186K
30-yr benefit at 62: 60.00% of FAC
CalSTRS 2% at 60 (Classic)
Age factor at 55: 1.460% / yr
Age factor at 60: 2.000% / yr
Career factor: +0.2% with ≥30 yrs (max 2.4%)
Min retirement age: 50 (30+ yrs) / 55 (5+ yrs)
FAC: Best 12 months
30-yr + career factor at 60: 66.00% of FAC
CalSTRS 2% at 62 (PEPRA)
Age factor at 55: 1.160% / yr
Age factor at 62: 2.000% / yr
Career factor: Not available
Min retirement age: 55
FAC: Best 36 months
30-yr benefit at 62: 60.00% of FAC
Survivor & Beneficiary Options
Elected at retirement. Generally irrevocable. This decision affects the member's monthly income for life and their survivor's income.
⚠️ This decision is permanent. For CalPERS Options 2, 3, and 4 and CalSTRS Options 1 and 2, you generally cannot change your beneficiary after retirement. The reduction to your allowance remains in effect for life even if your beneficiary predeceases you (unless the W pop-up is elected — CalPERS only).
CalPERS Retirement Payment Options
Member Benefit
100% — no reduction
Ongoing Survivor Benefit
None — benefit stops at member's death
Survivor Continuance (separate)
Employer-paid 25% or 50% still applies if contracted
Member Benefit
Largest reduction — actuarially based on age difference
Beneficiary Receives
100% of member's reduced allowance for life
2W Pop-Up
Benefit restores to unmodified if beneficiary predeceases member
Always recommend 2W over plain Option 2.
Member Benefit
Moderate reduction — smaller than Option 2
Beneficiary Receives
50% of member's reduced allowance for life
3W Pop-Up
Same pop-up provision as 2W
CalSTRS Retirement Payment Options
Member Benefit
100% — no reduction
Ongoing Survivor Benefit
None — benefit stops at member's death
One-Time Death Benefit
$7,288 (Coverage A or B)
Member Benefit
Largest reduction — actuarially based on age difference
Beneficiary Receives
100% of member's reduced monthly benefit for life
Pop-Up
No pop-up — CalSTRS has no pop-up provision
Key difference: CalPERS offers the W (pop-up) provision — if the beneficiary dies first, the member's benefit restores to the unmodified amount. CalSTRS has no pop-up provision. This makes the IUL and annuity gap-fill conversation especially important for CalSTRS clients electing survivor options.
COLA — Cost-of-Living Adjustments
Both systems provide annual COLAs, but they work very differently. This is one of the most important and most overlooked planning considerations.
CalPERS COLA
2%
Compounding · Applied to the prior year's adjusted benefit
How it works: Each May 1, CalPERS applies the COLA to the current benefit — not the original. Year 1: +$120 on $6,000. Year 20: +$160+ on $8,000+. Over 20 years, a $6,000 benefit grows to ~$8,926.
When it starts: May 1 of the second calendar year after retirement.
PPPA Backstop: Protects retirees when accumulated COLA falls short of CPI inflation.
CalSTRS COLA
2%
Simple · Applied to the original (initial) benefit — not compounding
How it works: CalSTRS adds a fixed 2% of the original starting benefit each year. Year 1: +$120. Year 20: still +$120. After 20 years the benefit is $8,400 — vs. $8,926 with compounding CalPERS COLA.
When it starts: September 1 after the first anniversary of retirement.
SBMA Backstop: Pays a separate quarterly check when purchasing power falls below 85% of the original benefit.
The Compounding vs. Simple COLA Gap — Why It Matters
The single biggest long-term income risk for CalSTRS clients: Simple COLA means the same fixed dollar increase every year. Over a 25-year retirement on a $6,000/month pension, the difference between 2% simple and 2% compounding is ~$843/month by year 25.
| Year of Retirement | CalPERS (2% Compounding) | CalSTRS (2% Simple) | Annual Difference |
|---|
| Starting Benefit | $6,000/mo | $6,000/mo | $0 |
| Year 5 | $6,624/mo | $6,600/mo | $24/mo |
| Year 10 | $7,314/mo | $7,200/mo | $114/mo |
| Year 15 | $8,075/mo | $7,800/mo | $275/mo |
| Year 20 | $8,916/mo | $8,400/mo | $516/mo |
| Year 25 | $9,843/mo | $9,000/mo | $843/mo |
| Year 30 | $10,867/mo | $9,600/mo | $1,267/mo |
Social Security Fairness Act (January 2024)
WEP and GPO have been eliminated. The Social Security Fairness Act, signed January 2024, repealed the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO). CalPERS and CalSTRS members who previously had SS benefits reduced should contact SSA directly — benefits may be restored retroactively from January 2024.
Contribution Rates — 2025–26
Contribution rates are set annually by each system's board. Member contributions are deducted from payroll pre-tax.
CalPERS Member Contribution Rates
| Tier | Member Contribution | Notes |
|---|
| Misc Classic (2% at 55 / 60) | Varies by agency (~6–8%) | Set through bargaining; rate can be picked up by employer |
| Misc PEPRA (2% at 62) | 50% of normal cost (adjusted annually) | 2025: approx. 7–9% for most agencies |
| Safety Classic (3% @ 50 / Local) | Actuarially determined | Varies by bargaining unit agreement |
| Safety PEPRA (2% @ 57) | 50% of normal cost | Adjusted annually by CalPERS board |
| PEPRA Compensation Cap | $155,081 (SS participants) / $186,096 (non-SS) — 2025 |
CalSTRS Contribution Rates — FY 2025–26
| Contributor | DB Program Rate | Notes |
|---|
| Member (2% at 60 — Classic) | 10.205% of creditable earnings | Withheld via payroll deduction |
| Member (2% at 62 — PEPRA) | 50% of normal cost (adjusted annually) | Members notified annually |
| Employer (School District) | 19.10% of creditable earnings | Board may adjust ±1%/yr up to 20.25% max |
| State of California | 10.828% of member earnings | Adjustable ≤0.50% per year under Funding Plan |
CalSTRS DBS (Defined Benefit Supplement): A separate account funded by excess employer contributions. At retirement, members can receive it as a lump sum, annuity, or combination. This is a hidden asset many members don't know about until retirement counseling.
2025 Supplemental Plan Limits
CalPERS — 457(b) Deferred Compensation
Most CalPERS-covered employers offer a 457(b). Key advantages: no 10% early withdrawal penalty, pre-tax contributions, flexible distribution. 2025 limit: $23,500 / $31,000 (50+) / $34,750 (60–63).
CalSTRS — 403(b) and 457(b)
K-12 educators typically have access to a 403(b) TSA through their school district. FIA and fixed annuities are common 403(b) vehicles. Many districts also offer a 457(b). Both limits are independent — max both simultaneously.
Planning Considerations & Tax Facts
Critical items for client conversations, needs analysis, and supplemental income positioning around CalPERS and CalSTRS pensions.
Taxation of Benefits
Federal Income Tax — Both Systems
CalPERS and CalSTRS pension benefits are fully taxable as ordinary income at the federal level. A Form 1099-R is issued annually. Most member contributions were made pre-tax — meaning virtually the entire benefit is taxable.
California State Income Tax
California taxes CalPERS and CalSTRS benefits as ordinary income. There is no pension exclusion in California. CA's top marginal rate is 13.3%. For a client receiving $96,000/yr, effective CA tax can easily be 8–10%.
No FICA on Pension Benefits
Neither CalPERS nor CalSTRS pension payments are subject to FICA (Social Security or Medicare) taxes after retirement — a meaningful net-income advantage vs. earned wages.
Withholding Setup at Retirement
Both systems allow members to set federal and California withholding at retirement. Advise clients to work with their tax advisor — under-withholding leads to penalties; over-withholding reduces available cash flow.
Pension Gap — Planning Opportunity
The income gap is the planning conversation. Most CalPERS and CalSTRS members retire at 50–70% of their pre-retirement salary. The gap between pension income and final compensation — adjusted for inflation over a 20–30 year retirement — is the primary financial planning opportunity.
CalPERS Gap Solutions
• 457(b) deferred comp — no early withdrawal penalty
• Fixed indexed annuity (FIA) — income rider fills the gap
• IUL — tax-free supplemental income, death benefit
• Premium finance — large IUL with leverage for high-income members
• Roth conversion — tax diversification
CalSTRS Gap Solutions
• 403(b) TSA — primary accumulation vehicle; FIA inside 403(b)
• 457(b) — independent limit from 403(b)
• IUL — fills COLA gap; simple COLA erosion creates ongoing need
• FIA with income rider — addresses simple COLA gap
• DBS lump sum — seed capital for supplemental strategy
CalSTRS-specific urgency: Simple COLA means every year the pension replaces a slightly smaller share of real income. By year 20 in a 3% inflation environment, a $6,000/month pension has the purchasing power of ~$3,600 in today's dollars. This gap compounds annually.
System Contact & Key Resources
CalPERS
Member Services: 888-225-7377
Website: calpers.ca.gov
Member Portal: my.calpers.ca.gov
Key publications: PUB 1 (Planning Your Service Retirement)
CalSTRS
Member Services: 800-228-5453
Website: calstrs.com
Member Portal: mycalstrs.com
Key publications: Member Handbook 2025
LAFPP — Los Angeles Fire & Police Pensions
The City of Los Angeles's independent retirement system for sworn Fire & Police (and certain Harbor/Airport Police). A service-based defined-benefit formula with a DROP — no Social Security, no reciprocity. Tiers 3 / 5 / 6.
What LAFPP Is
Los Angeles Fire & Police Pensions (LAFPP) is the independent retirement system of the City of Los Angeles for its sworn Fire and Police members, and certain sworn Harbor (Port) and Airport Police.
LAFPP is a defined-benefit plan: a member who meets the age and service requirements receives a lifetime pension set by a formula, not by an account balance. Two features make it different from the CalPERS and 1937-Act county systems modeled elsewhere in this suite:
- No Social Security. Sworn members do not pay into or earn Social Security through this employment.
- No reciprocity. LAFPP does not exchange service credit with any other public system. Service earned elsewhere does not combine with LAFPP service.
- Service-based formula. The pension percentage is driven by years of service, not by an age factor. Age 50 is an eligibility gate, not a multiplier.
- A DROP. LAFPP offers a Deferred Retirement Option Plan — see the DROP tab.
Who is in which tier is set by hire date, not by choice. New members hired today enter Tier 6. The primary near-retirement group today is Tier 5 (members hired 2002–2011, now reaching 20+ years of service).
The Tiers at a Glance
| Tier | Who | Status for this ledger |
|---|
| Tiers 1 & 2 | Earliest sworn members | Legacy / largely retired — not modeled in the calculator |
| Tier 3 | Hired before Jan 1, 2002 | Modeled; also the formula used for a deferred benefit |
| Tier 4 | A closed intervening tier | Legacy — not modeled |
| Tier 5 | Hired Jan 1, 2002 – Jun 30, 2011 | Modeled — primary near-retirement cohort |
| Tier 6 | Hired Jul 1, 2011 – present | Modeled — current new-member tier |
This ledger and the calculator focus on Tiers 3, 5, and 6 — the tiers with active and near-retirement members. Tiers 1, 2, and 4 are legacy and are not modeled.
Eligibility & Contact
A service pension (Tiers 3/5/6) requires age 50 and at least 20 years of service — both conditions. A member who leaves with 20+ years before age 50 may take a deferred pension calculated on the lower Tier 3 percentages.
| Phone | (213) 279-3000 · (844) 88-LAFPP |
| Web | lafpp.com · lafpp.lacity.gov |
| Office | 701 East 3rd Street, Suite 200, Los Angeles, CA 90013 |
| Member estimate tool | MyLAFPP (member portal) produces the official benefit and DROP figures |
Service-Pension Percentage by Years of Service
Your pension is your Final Average Salary multiplied by the percentage below for your years of service. The percentage depends on service, not on retirement age (you must still be at least age 50 with 20 years).
| Years of Service | Tier 6 (%) | Tier 5 (%) | Tier 3 (%) |
|---|
| 20 | 40 | 50 | 40 |
| 21 | 43 | 53 | 43 |
| 22 | 46 | 56 | 46 |
| 23 | 49 | 59 | 49 |
| 24 | 52 | 62 | 52 |
| 25 | 55 | 65 | 55 |
| 26 | 59 | 68 | 58 |
| 27 | 63 | 71 | 61 |
| 28 | 67 | 74 | 64 |
| 29 | 71 | 77 | 67 |
| 30 | 75 | 81 | 70 (max) |
| 31 | 80 | 84 | 70 |
| 32 | 85 | 87 | 70 |
| 33+ | 90 (max) | 90 (max) | 70 |
The accrual rules behind the table
- Tier 6 (24-month Final Average Salary): 40% at 20 years, then +3%/yr (years 21–25), +4%/yr (years 26–30), +5%/yr (years 31–33); ceiling 90% at 33 years.
- Tier 5 (12-month Final Average Salary): 50% at 20 years, then +3%/yr, except the 30th year adds 4%; ceiling 90% at 33 years.
- Tier 3 (12-month Final Average Salary): 2%/yr for the first 20 years, then 3%/yr; ceiling 70% at 30 years.
The percentage is prorated to your last completed pay period, so a mid-year retirement lands between two whole-year rows. The calculator scenarios use whole ages and therefore whole years of service, which match the table exactly.
Worked Example
A Tier 5 member with 28 years of service and a $150,000 annualized Final Average Salary:
- Percentage for 28 years (Tier 5) = 74%
- Annual pension = $150,000 × 74% = $111,000
- Monthly pension = $111,000 ÷ 12 = $9,250
Enter Final Average Salary as an annualized figure (12 × the average monthly pay) so the calculator returns an annual benefit consistent with the other systems in the suite.
Tier 3 vs. Tier 5 vs. Tier 6
LAFPP has no "Classic vs. PEPRA" split — PEPRA does not apply to it. The relevant comparison is across LAFPP's own tiers, which differ by hire date.
| Provision | Tier 3 | Tier 5 | Tier 6 |
|---|
| Hire-date range | Before 1/1/2002 | 1/1/2002 – 6/30/2011 | 7/1/2011 – present |
| Final Average Salary | Highest 12 months | Highest 12 months | Highest 24 months |
| Percentage at 20 yrs | 40% | 50% | 40% |
| Accrual after 20 yrs | +3%/yr | +3%/yr (30th yr +4%) | +3% (21–25), +4% (26–30), +5% (31–33) |
| Maximum percentage | 70% at 30 yrs | 90% at 33 yrs | 90% at 33 yrs |
| Retirement eligibility | Age 50 + 20 yrs | Age 50 + 20 yrs | Age 50 + 20 yrs |
| Employee contribution | 8% | 8% (9% if under 100% funded) | 11% (2% funds retiree health) |
| COLA | Up to 3% | Up to 3% + COLA Bank | Up to 3% + COLA Bank |
| Social Security | No | No | No |
| Reciprocity | None | None | None |
Planning read: Tier 5 reaches a given percentage faster than Tier 6 (it starts at 50% vs. 40% at 20 years), but both cap at 90% at 33 years. Tier 6's 24-month Final Average Salary can pull the base slightly below a 12-month figure if the final year included a promotion.
The Deferred Retirement Option Plan (DROP)
DROP lets an eligible member "retire on paper," keep working for up to five years, and accumulate the monthly pension in a nominal LAFPP account — then take that balance at exit while beginning the monthly pension.
Eligibility
- Tier 3, 5, or 6 with at least 25 years of service and at least age 50.
- Available to all Fire and Police members except the Chief of Police and the Chief Engineer (also open to eligible Harbor/Airport Police).
- Service credit and eligibility freeze on the DROP entry date; no further service credit is earned.
How the account grows
- Your monthly pension is calculated and frozen at entry, then deposited into the DROP account instead of paid to you.
- The account earns a guaranteed 5% annual interest, credited semi-annually on June 30 and December 31.
- Your frozen pension still receives its annual COLA (up to 3%) during DROP.
- You must complete 112 work hours per month to earn that month's deposit.
- Maximum participation is 5 years / 60 months. Interest stops at exit and after 60 months.
At exit
- Exiting DROP ends sworn employment; the monthly pension then begins.
- The DROP balance is paid as a lump sum, a direct rollover, or a combination. There is no surrender charge.
- You have a 90-day window after exit to elect. Miss it and the default is a cash payout with 20% federal withholding.
Tax treatment
- The DROP account is part of a governmental 401(a) qualified plan. It is not tax-free: distributions are taxed as ordinary income, except recovery of any after-tax basis.
- A direct rollover to an IRA or qualified plan avoids the mandatory 20% federal withholding and defers tax.
- As a qualified public-safety employee separating in the year you reach age 50 or later, the 10% early-distribution penalty does not apply to a post-separation distribution.
Where a rollover can go
- Traditional or Roth IRA (an IRA may itself be an annuity), a tax-qualified plan, a 403(b), or a governmental 457(b) that accepts the funds.
- The City's 457 plan will not accept after-tax funds.
Modeling note: the calculator's DROP projection assumes 5% credited semi-annually on the running balance and applies COLA to the deposit annually. It is a planning estimate. The official DROP figure comes from MyLAFPP — confirm before relying on a number.
Cost-of-Living Adjustments
LAFPP applies a COLA to pensions each July 1, based on the change in the Consumer Price Index for the Los Angeles metro area.
| Feature | Tiers 3 & 4 | Tiers 5 & 6 |
|---|
| Annual cap | Up to 3% | Up to 3% |
| COLA Bank | No bank | Yes — CPI above 3% is banked |
| Effective date | July 1 | July 1 |
| Floor | Base pension is never reduced below its original amount |
The COLA Bank (Tiers 5 & 6): when CPI runs above the 3% cap, the excess is stored and paid out in later years when CPI is below 3%. It smooths, but does not fully restore, purchasing power over time.
Tiers 1 & 2 receive the full CPI (uncapped); all later tiers are capped at 3%.
Current adjustment
- Effective July 1, 2026, the COLA is 2.90% for all tiers (under the 3% cap).
- Because 2.90% is below the cap, 0.00% was added to the Tier 5/6 COLA Bank in 2026 (0.10% was banked in 2025).
Planning read: a 3% cap means real purchasing power still erodes in higher-inflation years. This is the gap a supplemental income strategy is meant to close.
Employee Contribution Rates
Contributions are pre-tax, deducted automatically, and set by the City Charter. Member contributions earn interest each June 30 and December 31 while active.
| Tier | Rate | Notes |
|---|
| Tier 3 | 8% | Pre-tax; refundable with interest if you leave before retirement. |
| Tier 5 | 8% (9% if the plan is under 100% actuarially funded) | Contributions cease after 33 years of service. |
| Tier 6 | 11% | 9% toward pension (ends at 33 yrs or retirement) + 2% toward retiree health (ends at 25 yrs or retirement). |
- If you terminate before retirement, your contributions and accrued interest are refundable; contributions no longer earn interest after termination.
- Members of certain earlier tiers who elected a 2% "opt-in" health contribution continue it until they have paid it for 25 years.
- During DROP, both member and City contributions continue (DROP is designed to be cost-neutral) at the rate and for the length specified for the tier.
Planning & Tax Considerations
Items that shape a sworn member's total retirement picture beyond the base pension.
Survivor & continuance
- A qualified surviving spouse or domestic partner may receive a continuing pension. To be "qualified," the marriage or registered partnership must generally pre-date retirement (or DROP entry) by at least one year.
- A retired member may also elect the Survivor Benefit Purchase Program to provide (or increase) a survivor benefit by reducing the monthly pension — continuance choices run from 30% to 100% in 5% steps, vest one year after election, and are irrevocable.
Retiree health & dental
LAFPP administers a retiree health and dental subsidy (partly funded by the Tier 6 2% health contribution). The maximum monthly subsidy is set by the Board and adjusts periodically.
Confirm before quoting: the current maximum monthly health/dental subsidy amount and eligibility service requirement change over time — verify the current figure with LAFPP for a specific client.
IRS limits
Federal limits apply to qualified plans: the IRC §415(b) annual benefit limit (for DROP, generally set by the DROP-entry year) and the IRC §401(a)(17) compensation limit.
Confirm before quoting: the current-year §415(b) and §401(a)(17) dollar amounts are indexed annually by the IRS and are not stated here — look up the current-year figures before applying them to a client.
Social Security interaction
Sworn LAFPP members earn no Social Security through this job, but many have Social Security from other work. The Social Security Fairness Act (signed January 2025) repealed the Windfall Elimination Provision and Government Pension Offset.
Confirm before advising: verify the current status and specific effect of the Social Security Fairness Act for a given client with the Social Security Administration before relying on it in a plan.
Compliance
This ledger is educational reference for a licensed consultant's use — it is not financial, tax, or legal advice. Plan provisions and figures change; every client-specific number should be confirmed with LAFPP (MyLAFPP for benefit and DROP estimates) and, where taxes are involved, with a tax professional. Any insurance or annuity recommendation made alongside this material must meet the suitability and disclosure rules of the client's state (for Edwards Financial & Associates: CA, TX, NV, AZ, NM, GA, NC, WA).
Sources & methodology. Verified against LAFPP primary sources on
July 9, 2026: Tier 5, Tier 6, and Tier 3 pension pages and the Tier 6 Key Benefits sheet (lafpp.com / lafpp.lacity.gov); DROP FAQs, "Enroll in DROP," "DROP Participation," and the DROP Handbook; the Historical Cost-of-Living Adjustments page; and the Los Angeles Administrative Code, Division 4, Chapter 21 (§§ 4.2100–4.2107). Service percentages, hire-date ranges, Final Average Salary bases, contribution rates, the 90%/70% caps, the 5% DROP interest credited semi-annually, the 60-month DROP maximum, and the July 1, 2026 COLA of 2.90% are drawn from those sources.
Not independently reverified here and flagged in-page: current-year IRS §415(b) and §401(a)(17) dollar limits; the current maximum retiree health/dental subsidy; the exact intra-period DROP interest convention used by MyLAFPP; and the specific effect of the Social Security Fairness Act. Approximate active/retiree headcounts (~13,500 / ~13,000) are order-of-magnitude. For advisor reference only — not financial, tax, or legal advice. Verify current details at
lafpp.com.