Seal of the Office of the State Comptroller
RETIREMENT & BENEFIT SERVICES DIVISION MEMORANDUM

June 18, 1997

TO THE HEADS OF ALL STATE AGENCIES

ATTENTION: All Personnel and Payroll Officers
SUBJECT: ALTERNATE RETIREMENT PROGRAM (ARP) CONTRIBUTION LIMITS FOR EMPLOYEES EARNING $150,000 OR MORE
  1. INTRODUCTION

    As a result of revisions made by the Omnibus Reconciliation Act of 1993 (OBRA 1993), a cap under the Internal Revenue Code Section 401(a)(17) was placed on the amount of annual compensation which may be taken into account for purposes of calculating pension contributions. This Act, originally applicable to private pension plans, embraced public retirement systems in the 1996 plan year.

    Accordingly, at its November 21, 1996 meeting, the State Employees Retirement Commission amended the Alternate Retirement Program (ARP) to conform to the provisions of this Act. The purpose of this memorandum is to (1) discuss the impact of OBRA 1993 on the ARP and to supplement information concerning this limitation already transmitted to agencies by TIAA-CREF, the company that underwrites the ARP, and (2) to outline the required administrative procedures to ensure compliance with the Act.

  2. IMPACT OF OBRA 1993 ON THE ARP

  1. Employees who became participants of the ARP prior to January 1, 1996 will not be subject to the OBRA 1993 annual compensation limit in 1996 or any year thereafter.
  2. Employees who become participants in the ARP on and after January 1, 1996 are subject to the compensation limit as adjusted by the Commissioner of the Internal Revenue Service for increases in the cost of living in accordance with Section 401(a)(17)(B) of the Internal Revenue Code. For the 1996 calendar year, the compensation limit (CAP) was $150,000; for the 1997 calendar year the compensation limit (CAP) is $160,000.
  1. SECTION 415 GENERAL LIMIT

    Regardless of whether employees became participants in the ARP before or after 1996, they will continue to be subject to the General Limit on contributions imposed by Section 415(c) of the Internal Revenue Code. For 1996 and 1997 calendar years, the General Limit is the lesser of $30,000 or 25% of the participant's covered compensation. The $30,000 limit on contributions is subject to adjustment in future years by the Commissioner of the Internal Revenue Service for increases in the cost of living in accordance with Section 415(d) of the Internal Revenue Code.

  2. ADMINISTRATIVE PROCEDURES

  1. It is the obligation of each agency payroll department to ensure compliance with the OBRA cap and to determine when an ARP participant reaches the maximum compensation threshold ($160,000 for 1997 calendar year).
  2. The agency payroll department must stop contributions to ARP when the compensation limit is met; the agency must resume the required contributions with the first payroll check dated in the next calendar year.

  1. CONCLUSION

    The Retirement & Benefit Services Division will keep agencies informed of any future increases in the maximum compensation limit to be used for ARP pension contribution purposes. Questions concerning this memorandum may be directed to James Schnell, ARP Coordinator, at (860) 702-3508.

Very truly yours,

STATE EMPLOYEES RETIREMENT COMMISSION
NANCY WYMAN, SECRETARY EX OFFICIO

BY:

Steven Weinberger, Director
Retirement and Benefit Services Division

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