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The state’s ARP is the retirement program established by law last
summer as part of the budget act for all "miscellaneous" state
employees hired on or after August 11, 2004. Employees new to
state service, without previous CalPERS membership, will be placed
in the ARP.
The ARP requires new
hires to pay their regular "retirement" contribution (monthly
salary less $513 x 5%) into an IRC 401(a) plan administered by the
Department of Personnel Administration for 24 months. No
retirement contributions by the state are required—that’s why the
Governor and the Legislature forced this on employees in the final
stages of last summer’s budget deal. Because the state makes no
CalPERS contribution for two years, it saves millions of dollars.
It was apparently assumed that new employees won’t care if they
are shafted out of the first two years of a decent retirement.
CAPS does. CAPS has a lawsuit pending which challenges the
legality of this program.
On the employee’s
25th month of employment, the employee is automatically moved in
to the CalPERS Tier I program. The employee’s contribution remains
the same, but instead of going to DPA it will be made to a CalPERS
account. The state then begins to make retirement contributions on
behalf of the employee starting the 25th month. Later, between
47th and 49th months of employment, each affected employee will be
directed to select one of three alternatives for their IRC 401(a)
account:
- Move the balance
of the 401(a) account to their CalPERS account. The state will
then be REQUIRED to make the prescribed retirement contribution
into the employee’s PERS account for the first 24 months of
employment.
- Move the balance
of the 401(a) account to a 401(k) account. The state will NOT
make any contribution for the first 24 months of employment
under this option.
- Cash out the
401(a) account, minus an early withdrawal penalty of about 10%,
plus taxes. The state will NOT make any contribution for the
first 24 months here either. An employee who has prior service
credit with CalPERS may be eligible to enroll directly into the
CalPERS program. To enroll, the employee must insist he or she
be placed in the CalPERS program—it won’t happen automatically.
If there are other questions, or if you need assistance, please
email CAPS today or
call the CAPS office nearest to your work location.
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