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
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.
- IMPACT OF OBRA 1993 ON THE ARP
- 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.
- 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.
- 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.
- ADMINISTRATIVE PROCEDURES
- 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).
- 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.
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
Steven Weinberger, Director
Retirement and Benefit Services Division
Back to Comptroller's Home Page
Back to Index of Retirement & Benefit
Services Division Memoranda