Termination & Deferred Membership

For the purposes of this fact sheet, “vested” means you have enough service credit to eventually receive a pension from SDCERS, even if you are not yet age-eligible. Your service credit and age eligibility depend on your classification, employer, and hire date. Please refer to your Retirement Plan Summary (specific to your plan sponsor, member classification, and hire date range) to determine your eligibility requirements.

City
General and Safety Members are vested with 10 years of service credit, including all purchased and reciprocal time.

Elected Officers are vested with four years of service credit, including all purchased and reciprocal time.

Port
General and Safety Members are vested with five years of service credit, including purchased* and reciprocal time.

Airport
General Members are vested with five years of service credit, including purchased* and reciprocal time.

*NOTE: For Port and Airport Members, service credit purchased as part of a “5-year PSC” purchase does not count towards vesting.

(1) LEAVE CONTRIBUTIONS ON ACCOUNT WITH SDCERS

Vested Members (“Deferred Vested Membership”) 

As a vested Member, you have earned the right to retire and begin receiving your lifetime monthly pension benefit once you become age-eligible. To do so, you must leave your contributions on account with SDCERS when you terminate employment. This is called “Deferred Vested Membership.” 

Your contributions will remain on account with SDCERS until you are age-eligible to retire, but your pension benefits do not automatically begin when you become eligible. SDCERS will attempt to contact you six months before you become age-eligible to retire. However, it is your responsibility to contact SDCERS and file a retirement application when you are ready to retire. You should submit your service retirement application via your Member Portal account at least 90 days prior to your desired retirement date, after which time SDCERS will call you to schedule an appointment with one of our retirement counselors. SDCERS must receive your final application before the date of retirement. If an application is withdrawn and refiled at a subsequent date, the effective date of retirement will be based upon the date of resubmission. 

Non-Vested Members 

Non-vested Members may leave their contributions on deposit with SDCERS in order to establish reciprocity or to retain service credit if they plan to return to City, Port, or Airport employment in the future. Your contributions will continue to accrue annual compounded interest, applied every June 30th, at either SDCERS’ current interest crediting rate (6.5%) if you are an inactive Port or City Member, or at the current DROP account rate if you are a non-vested, inactive Airport Member. 

Required Minimum Distribution 

The Internal Revenue Service (“IRS”) restricts a Member’s ability to leave their contributions on account indefinitely. The IRS compels you to take a “Required Minimum Distribution” of your SDCERS retirement funds by age 70 ½ if you were born before July 1, 1949, by age 72 if you were born after June 30, 1949, or by age 73 if you were born on or after January 1, 1951, regardless of whether or not you are vested (although some exceptions may apply - if you are still working for an SDCERS plan sponsor or a reciprocal system, for example). If you have not yet begun collecting your retirement benefit by this age, SDCERS will notify you of this requirement. 

(2) LEAVE CONTRIBUTIONS ON ACCOUNT WITH SDCERS AND ESTABLISH RECIPROCITY 

Any Member, whether vested or not vested, may leave their contributions on account with SDCERS to establish reciprocity when leaving City, Port, or Airport employment and going to work for a reciprocal agency (see the Reciprocity Fact Sheet for more information about reciprocity). To establish reciprocity, you must leave your contributions on account with SDCERS, terminate employment with the City, Port, or Airport, begin employment with an employer in a reciprocal system within 180 days of terminating, and eventually become a member of that reciprocal system. Overlapping service between SDCERS and the reciprocal agency will prevent establishment of reciprocity and withdrawing your SDCERS contributions will break reciprocity. 

(3) TAKE A REFUND OF CONTRIBUTIONS

Members may take a refund of their contributions and interest upon termination. Members who are not vested often take a refund if they do not plan to re-enter employment with the City, Port, or Airport, or if they do not plan to work for a reciprocal agency. Three key rules regarding refunds are: 

1) If you take a refund of your contributions, you have forfeited the right to receive any pension benefit, including a disability retirement benefit, if you subsequently become eligible for those benefits; 

2) If you take a refund, you cannot establish reciprocity; and 

3) The only way to re-establish your service credit is to re-enter service with your prior employer (City and Airport only) and redeposit your previously refunded contributions, plus interest. However, this option is not available for Port Members. 

Lump Sum Distribution
SDCERS will transfer the funds in your account to you or the account you designate for transfer. However, SDCERS is required to withhold 20% of the taxable portion for federal income taxes and 2% for California residents.* Also, if you are under age 59 ½ on the transfer date, the taxable portion of your account may be subject to the 10% early withdrawal penalty according to IRS rules. Please consult a tax professional for any additional tax-related questions. 

*If you are not a California resident on the date your refund is processed, then you may not be subject to the 2% California tax. However, you must ensure that your out-of-state address is updated in SDCERS' records before you request the refund; otherwise, the 2% state tax will likely be automatically applied and you will have to file a California state income tax return for that tax year in order to seek a refund. Please note that SDCERS cannot withhold state taxes for any state other than California, so you may owe state taxes in your new state of residence. 
 
 
Rollover
Alternatively, you may request a rollover of the pre-tax portion of your account balance to an IRA or other qualified plan. If you elect a direct rollover to a Roth account, no withholding will be deducted, but you will owe taxes on the taxable portion at the end of the year. Often, post-tax contributions cannot be rolled over, in which case they would be refunded to you in the form of a separate check. It is your responsibility to determine in advance if your rollover plan will accept post-tax contributions (if any).

If you left your contributions on account with SDCERS… 

If you return to City, Port, or Airport service and have left your contributions on deposit with SDCERS, your service credit will begin accruing again, picking up where it left off, and you will resume making bi-weekly contributions from your paycheck based on your original entry age to SDCERS, adjusted by the period of time you were away from City, Port, or Airport service. 

EXAMPLE: if your original age at entry into SDCERS was 20, you worked for the City until you were 25, went to work for Company XYZ for 10 years without withdrawing your contributions from SDCERS, and then returned to City service, you would be age 35. Your entry age would be adjusted to be a combination of your age at entry (20) plus the amount of time you were gone (10 years) and your contribution rate would be based on someone with an entry age of 30. 

If you took a refund of contributions… 

If you return to City or Airport service and you took a refund of your contributions when you previously left employment, you may repay those contributions in a lump sum, plus interest at the actuarial interest rate. When your contributions have been fully repaid, SDCERS will adjust your bi-weekly contributions back to the rate based on your original entry age into SDCERS, plus the additional adjustment for the period of time that you did not work for the City or Airport, as explained in the example above. 

NOTE: Port Members do not have the option of repaying their contributions after they have withdrawn them, even if they subsequently return to Port employment. 

Death Benefits

If you die as a deferred vested Member or as a non-vested Member with contributions still on deposit with SDCERS, SDCERS will contact your most recently designated beneficiary on file. Your beneficiary will receive a refund of all of your contributions, plus interest. However, even if you are age and service-eligible for a retirement benefit at the time of your death, your beneficiary will not receive a continuance benefit or the retiree death benefit. See SDCERS’ Death Benefits Fact Sheet for more information.

Applying For a Disability Retirement After Termination

You must leave your contributions on deposit to apply for a disability retirement. An application for a disability retirement generally must be made within four months of termination. However, if the Applicant can prove they were continuously incapacitated from the performance of duty from the date of termination to the date of the application for a disability retirement, their deadline to apply for a disability retirement is within two years of termination. Please refer to SDCERS’ Disability Retirement Fact Sheet for more information.

Community Property

If you were married during your employment with the City, Port, or Airport, your spouse has a community property interest in 1/2 of the retirement benefits you earned during the marriage, including the contributions and interest in your SDCERS retirement account. If you are divorced from that spouse at the time of your termination and decide to take a refund of your contributions—and SDCERS has received a notice of adverse interest from your former spouse or been joined to your divorce case—SDCERS must withhold the former spouse’s estimated share of the refund in trust for the former spouse. SDCERS will continue to withhold the former spouse’s estimated community property interest until SDCERS receives a Domestic Relations Order with direction on how to pay those community property funds, or until SDCERS is dismissed from the action. For more information, please visit the Divorce & Community Property page.

Keep Your Address Updated

Once you terminate employment, it is very important to keep your address up to date with SDCERS so that you can receive important communications from us regarding your contributions left on account. You can update your address through your Member Portal by submitting a “Change of Address” directly online. Alternatively, you can contact the SDCERS Call Center at (619) 525-3600 and request a Change of Address form.