AD96-06 Issued 7-15-96 Federal Compensation Limits for Public Pension Plans
All County Superintendents of Schools
District Superintendents of Schools
Community College Districts
Other Employing Agencies.
Administrative Directive 96-06
Federal Compensation Limits
for Public Pension Plans.
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.
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).
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.
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.
JAMES D. MOSMAN
Chief Executive Officer