How California Public Pensions Work

Defined Benefit, Not Defined Contribution

CalPERS and CalSTRS are defined-benefitpensions, not 401(k)-style defined-contribution accounts. That distinction matters: in a defined-benefit plan, the formula guarantees a specific monthly benefit for life based on your final salary and years of service. Investment returns and employer/employee contribution levels affect the plan's funded ratio, not your individual benefit. You don't have an "account balance" that can run out.

The Formula — Same Shape, Different Numbers

Both CalPERS and CalSTRS calculate your pension as benefit factor × years of service × final monthly compensation. The benefit factor depends on your formula and your exact retirement age. Years of service counts every quarter-year of CalPERS- or CalSTRS-covered work. Final compensation is an average of your highest pensionable salary over a 12-month (Classic) or 36-month (PEPRA) window.

The differences between CalPERS formulas (32 of them) and CalSTRS formulas (2 main ones) are in the specific numbers — reference age, benefit factor curve, minimum age — not in the underlying math.

Classic vs PEPRA

In 2013, the California Legislature passed the Public Employees' Pension Reform Act (PEPRA), creating a second tier of formulas for new hires. Members hired on or after January 1, 2013 (without prior CalPERS or CalSTRS service) are PEPRA members and have lower benefit factors at younger ages, a 36-month final-compensation average instead of 12, a compensation cap, and a higher employee contribution rate. Members hired before 2013 (or with prior service) are Classic members and keep the more generous pre-PEPRA formulas.

How They're Funded

Each plan is funded by three sources: employee contributions deducted from members' paychecks, employer contributions set by the system's actuary, and investment returns on the trust fund. The actuary recalculates the required contribution rates every few years based on the gap between expected future benefits and current assets. When investment returns fall short of expectations, the actuary raises the required contribution rate to close the gap — which is why employer contributions for both systems have risen meaningfully since the 2008 financial crisis.

COLA — The Annual Adjustment

Both systems pay an annual cost-of-living adjustment each spring, generally capped at 2% per year. When inflation exceeds the cap, retirees' real purchasing power slowly erodes. Both plans have purchasing-power-protection backstops that kick in if a retiree's pension falls below a specified fraction (usually 75-80%) of its original purchasing power, but these floors rarely trigger in normal inflation environments.

Which System Are You In?

If you're a certificated K-12 teacher, community college instructor, or some types of administrators, you're in CalSTRS. If you're a state employee, local government employee (city, county, special district), or school classified staff (non-teaching school employees), you're in CalPERS. A small number of careers — like switching from teaching to administration — can build service credit in both systems, in which case reciprocity rules apply at retirement.

Compare CalPERS and CalSTRS side by side →