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Electing an Option

To provide a lifetime monthly benefit to someone when you die, you can elect an option at retirement (this is different from the one-time death benefit). An option allows you to distribute your retirement benefit over your life and the life of your option beneficiaries. If you did not make a preretirement election of an option, your option election is effective as of your retirement date.

The deadline to change or cancel your option election on your Service Retirement Application is 30 days from the date your first benefit payment is issued. Once the deadline to change or cancel your retirement application passes, your option election is irrevocable, except under certain limited circumstances.

You can elect an option if you are eligible but not yet ready to retire. Making a preretirement election of an option provides a lifetime monthly benefit to your beneficiaries if you should die before retirement.

Your option beneficiary must be a person—you cannot designate a trust, charity, estate, organization or other entity as your option beneficiary. These entities may be named as One-Time Death Benefit recipients.

Member-Only Benefit

The Member-Only Benefit is usually the highest monthly benefit available when you retire. The benefit:

  • Provides a monthly benefit for your lifetime.
  • The benefit stops after you die.
  • At the time of your death, the balance of contributions and interest remaining in your account will be paid to your designated death benefit recipients.

To provide a monthly CalSTRS benefit to your beneficiaries after your death, you must elect a retirement option. The retirement option is different from the one-time death benefit.

Option Choices

You can provide a monthly benefit for someone after your death by electing one of the following options. You may also elect the Compound Option to provide for one or more option beneficiaries.

  • 100% Beneficiary Option: Provides your option beneficiary with 100 percent of the amount you were receiving upon your death. If your option beneficiary dies before you, your benefit will rise to the Member-Only Benefit.
  • 75% Beneficiary Option: Provides your option beneficiary with 75 percent of the amount you were receiving upon your death. If your option beneficiary dies before you, your benefit will rise to the Member-Only Benefit.
  • 50% Beneficiary Option: Provides your option beneficiary with 50 percent of the amount you were receiving upon your death. If your option beneficiary dies before you, your benefit will rise to the Member-Only Benefit.
  • Compound Option: Allows various choices. You may:
    • Name one option beneficiary and retain a portion of your benefit as a Member-Only Benefit.
    • Name two or more option beneficiaries, with an option choice for each, and retain a portion of your benefit as a Member-Only Benefit.
    • Name two or more option beneficiaries, with an option choice for each, and not retain any of your benefit as a Member-Only Benefit.

How Choosing an Option Changes Your Benefit

An option provides you with a reduced retirement benefit, or Modified Benefit, based on a percentage of your Member-Only Benefit. That percentage, called an option factor, is based on:

  • your age and the age of your option beneficiary on either the effective date of your retirement or when you make a preretirement election of an option,  and
  • the option you elect.

For examples of option benefit factors, see the Service Retirement Option Factor Tables in the Member Handbook.

The formula for calculating a benefit reduced by the election of an option is:

Member-Only Benefit x Option Factor = Benefit Amount

If you elect an option before retirement, the option factor when you retire will be the higher of the option factor in effect on the date the option was chosen or on the date of retirement.

Nonspouse Option Beneficiary

Under federal law, if you name someone other than your spouse or a former spouse as your option beneficiary, the type of option you may elect depends on your age and the age of your option beneficiary:

  • Under the 75% Beneficiary Option, your nonspouse option beneficiary cannot be more than exactly 19 years younger than you.
  • Under the Compound Option, your nonspouse option beneficiary cannot be either more than exactly 19 years younger than you under the 75% Beneficiary Option, or more than exactly 10 years younger than you under the 100% Beneficiary Option.

Federal age restrictions also apply to registered domestic partners.

Preretirement Election of an Option

When you’re eligible to retire, you may make a preretirement election of an option to provide a monthly lifetime income for another person or persons if you should die before retirement. When you elect an option, your monthly retirement benefit will be reduced from the Member-Only Benefit. The percentage of the reduction is based on the option you elect, your age and your beneficiary’s age at the time you elect an option.

If you make a preretirement election of an option and die before retirement, the monthly benefit paid to your beneficiaries will be based on the reduced retirement benefit that would have been paid if you had retired as of the date of death.

By making a preretirement election of an option, you will receive the highest option factor available to you on either your election date or your retirement date.

Although your benefit will be reduced at retirement based on the option you choose, your reduced benefit may be slightly higher than if you wait until retirement to choose an option. Your option factor, or the amount your benefit will be reduced, is based on your age and your beneficiary’s age at the time of election.

Advantages and Disadvantages of Preretirement Elections

Be sure to consider the advantages and disadvantages of choosing a preretirement election of an option.

Advantages

If you die before retirement and you made a preretirement election of an option, your beneficiary will receive a lifetime monthly retirement benefit. The benefit begins immediately after your death, regardless of the ages of your beneficiaries. In most cases, the benefit will be higher than if you elected an option at the time of retirement.

If you become disabled after making a preretirement election of an option and you have a disability benefit under Coverage A, you may retain the option election to provide a monthly benefit to your option beneficiary.

The career factor does not apply if you die before retirement without a preretirement election of an option on file at CalSTRS.

Disadvantages

If you cancel or change your preretirement election of an option before retiring, your retirement benefit may be reduced for life.

If your option beneficiary dies before you retire, the election automatically will be canceled and your retirement benefit may be permanently reduced.

You can elect a new beneficiary if you cancel your previous election or your beneficiary dies before you retire. You will have to pay an assessment. Your benefit amount will be reduced again based on your new beneficiary’s age, your age and the option you elect.

Steps to Electing a Preretirement Option

To elect a preretirement option:

  1. Complete the Preretirement Election of an Option form (SR 0307) or the Preretirement Compound Option Election form (SR 0365).
  2. Your spouse or registered domestic partner must sign your form or you must complete and return the Justification for Non-Signature of Spouse or Registered Domestic Partner form with your preretirement election. If your spouse or partner does not sign the form or if we do not receive the Justification for Non-Signature of Spouse or Registered Domestic Partner form, your preretirement election will not be accepted and your election will not be effective until the requirements are met.

To be valid, CalSTRS must receive your election form within 30 days of the date you signed it, and all requirements must be met.

Date of Birth Verification

CalSTRS requires verification of your and your option beneficiary’s date of birth. Acceptable documentation for verification includes clear, unaltered photocopies of one of the following:

  • Birth certificate
  • Passport ID page
  • Certain military IDs

If any name has been changed from the name shown on the record of birth, a copy of the marriage certificate or court order documenting the change is required. If you do not have any of these records, contact CalSTRS for assistance.

Canceling a Preretirement Election of an Option

If you cancel your preretirement election of an option for any reason, an assessment may apply and will be calculated at retirement. The assessment will reduce your monthly retirement benefit for life.

A preretirement election of an option is canceled automatically if:

  • You take a refund.
  • You elect a new option or a new option beneficiary.
  • Your option beneficiary predeceases you.

CalSTRS will calculate the assessment factor as of the cancellation date of your preretirement election based on:

  • The option you elected.
  • The amount of time your preretirement option election was in effect.
  • Your age at the time of election and cancellation.
  • Whether you have Coverage A or Coverage B.
  • Whether your option beneficiary is your spouse or registered domestic partner.

Your spouse or partner must sign the cancellation of a preretirement election of an option or you must complete and return the Justification for Non-Signature of Spouse or Registered Domestic Partner form with the request for cancellation. If your spouse or partner’s signature is not provided or if we do not receive the Justification for Non-Signature of Spouse or Registered Domestic Partner form, the cancellation will not be accepted, and it will not be effective until the requirements are met.

Adding, Changing or Canceling Your Option Election

You can change your option beneficiary after retirement only under four circumstances.

Death of Beneficiary: If your original option beneficiary dies after the effective date of your retirement, you may elect a new option beneficiary. If you choose not to elect a new option beneficiary, your benefit will rise to the Member-Only Benefit amount.

You may elect a new option beneficiary by completing the required form and submitting a certified copy of the death certificate to CalSTRS. The appropriate reduction to your benefit will be made.

Even if you choose not to elect a new beneficiary, you must notify CalSTRS if your beneficiary dies after your retirement effective date and send us a copy of the death certificate. If you elect a new option beneficiary, the election will be effective six months after CalSTRS receives your new designation. While you can name a new beneficiary, you cannot change the original option you elected.

Divorce: You may cancel your option election if your option beneficiary is your current or former spouse or registered domestic partner, and a final decree of dissolution of marriage or a judgment of nullity has been entered, or an order of separate maintenance was made on or after January 1, 1978—and you are not required to keep your former spouse or partner as your option beneficiary.

The notification to cancel the option must include a certified copy of the final judgment, court order or any property settlement agreement confirming you are no longer required to maintain the former spouse as an option beneficiary.

If you cancel your option election, the amount that your benefit was previously reduced will not be reimbursed to you.

As of the date of notification, you may elect to receive the Member-Only Benefit. Or you may choose to elect one or more new option beneficiaries, which will result in a modification to your retirement benefit based on your age and the ages of your new option beneficiaries. While you can elect a new option beneficiary, you cannot change the option you originally elected. If the court order requires you to keep your former spouse as an option beneficiary for the community property percentage share only, you may either elect additional option beneficiaries or keep the remaining portion of your retirement as the Member-Only Benefit. Your choice must be consistent with the court order or judgment and must not result in any liability to CalSTRS.

Spouse or Partner: If you had previously designated a person other than your current or former spouse or registered domestic partner as your option beneficiary, you may cancel your option beneficiary election and designate your spouse or partner as your new option beneficiary.

If you elect a new option beneficiary, the election will be effective six months after CalSTRS receives the new designation. While you can name a new beneficiary, you cannot change the original option you elected. Your benefit will be subject to an actuarial reduction based on your age and the age of your spouse or partner.

Newly Married or Registered in Domestic Partnership: If you were unmarried or unregistered at retirement and receiving a Member-Only Benefit, you can choose an option and name your new spouse or partner as an option beneficiary if you later marry or register in a domestic partnership.

You must be married or registered at least one year before electing the option and naming the option beneficiary.

Your benefit will be subject to an actuarial reduction based on your age and the age of your spouse or partner. Your new option election and beneficiary addition will be effective six months after CalSTRS receives the designation.

Benefit Adjustment

When you choose a new option or a new option beneficiary, an adjustment to your benefit will be made. Before changing your option or choosing a new option beneficiary, contact CalSTRS  to get an estimate of your benefit based on your new election. Your election cannot be changed once CalSTRS receives it except if your beneficiary dies.

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