The annual compensation that can be used for calculating member contributions and benefits for qualified retirement plans is governed by Section 401(a)(17) of the Internal Revenue Code (IRC). The Internal Revenue Service (IRS) establishes the limit for each calendar year and has an inflation factor built in so the limit can increase each year. These compensation limits typically affect only a very small portion of the overall membership in the retirement system. The compensation limit for 2009 and the previous three years are as follows:
Once the paid compensation for a member reaches the established limit for a calendar year, no further member contributions should be reported to DRS for the remainder of that calendar year. Employers must continue to report compensation, hours, and employer contributions to the Department of Retirement Systems (DRS) so the member will earn service credit for that period. We have modified our systems to accept the reporting of compensation and no employee contributions for those members who go over the compensation limit. Member contributions will again be required once the new year begins.
The limit is only applicable to individuals who first became members of their retirement plan on or after January 1, 1996. There is no compensation limit for those individuals that became members prior to January 1, 1996.
DRS has instituted recent changes to ensure compliance with the annual compensation limits. In the future, when a member is approaching the compensation limit for the year, the DRS Employer Support Services Unit will contact your payroll or human resources staff and work with you to identify when the member will reach the compensation limit and at what point contributions should cease for the remainder of the year. If you know of an individual that is approaching or has reached the 401(a) limit and DRS has not yet made contact, please call or email DRS Employer Support Services.
If you have any questions regarding this DRS Notice, please contact Employer Support Services at (360) 664-7200, option 2, or 1-800-547-6657, option 6, option 2; or email us.
Assistant Director of Administrative Services