Administrative Directive

AD96-06 Issued 7-15-96 Federal Compensation Limits for Public Pension Plans

TO:

All County Superintendents of Schools
District Superintendents of Schools
Community College Districts
Other Employing Agencies.

FROM:

EXECUTIVE OFFICE

SUBJECT:

Administrative Directive 96-06
Federal Compensation Limits
for Public Pension Plans.

PURPOSE

To inform employers of the federal compensation limit for annual compensation that serves as the base for the accrual of pension benefits by persons benefits by persons who first become members of the plan on or after July 1, 1996.

SCOPE

This directive impacts all County Superintendents of Schools, school districts, community college districts, and other employing agencies that employ individuals in positions covered by the State Teachers’ Retirement System (STRS).

DISCUSSION

Chapter 829, Statutes of 1995, added Section 22317.5 to the Education Code. Section 22317.5 provides that the amount of annual compensation on which benefits may accrue under the STRS Defined Benefit (DB) plan may not exceed the limitations prescribed by Section 410 (a) 17 of Title 26 of the United States Code. The amount of the limitation is $150,000 and may be adjusted from time to time by the Commissioner of Internal Revenue to reflect increases in cost-of-living.
This limitation affects the accrual of benefits by persons who first become members of the plan on or after July 1, 1996. It does not affect the accrual of benefits by persons who first became members prior to July 1, 1996, even if they terminated their membership through refund of their retirement contributions and did not return to membership in the plan until after June 30, 1996.

STRS is prohibited from retaining contributions on creditable earnings in excess of the annual compensation limitation in effect each year and from using salary in excess of the current limitation in the calculation of final compensation. However, employers must still report the actual compensation earnable and creditable earnings to STRS to enable the System to properly calculate the member’s service credit.

Any employer and member contributions attributable to earnings in excess of the limitation will be adjusted by STRS prior to the annual update of member account information. For the 1996-97 school year, the annual update of member accounts will occur during the month of October 1997.

ACTION

The employer must inform employees who first become members of the STRS DB Plan on or after July 1, 1996, of the annual limitation on their creditable earnings and compensation earnable for final compensation. If a member’s compensation earnable and creditable earnings exceed the limitation, the employer is required to continue to report all earnings for creditable service and submit contributions to the System, pending notification from the STRS Reporting Section.
Any questions regarding the compensation limits should be addressed to Al Ray, Reporting Section Manager, at (916) 229-3261.

Signed,

JAMES D. MOSMAN
Chief Executive Officer

Commands