IRC Section 401(a)
IRS LIMITS AMOUNT OF ANNUAL COMPENSATION USED TO CALCULATE RETIREMENT BENEFITS
IRS limit applies to individuals who first entered LACERA membership on or after July 1, 1996 and are highly compensated.
Internal Revenue Code Section 401(a)(17)
LACERA’s defined benefit retirement plan is a tax qualified plan. To achieve and maintain tax-qualified status, retirement plans such as LACERA’s must meet requirements set forth in the Internal Revenue Code (IRC). Section 401(a)(17) of the IRC imposes a limit on the amount of annual compensation that can be used to calculate a participant’s retirement benefit. The limit for 2014 earnings is $260,000.
Applying Section 401(a)(17)
In the event a member’s annual earnings reach the maximum amount permitted under Section
401(a)(17), LACERA will discontinue deducting retirement contributions from that individual for the remainder of the year. Deductions for contributions will resume the following January.
Final compensation is one of the factors (along with age at retirement and amount of service credit) that is be used to calculate a member’s retirement allowance. In compliance with the IRC, for purposes of retirement calculations, the amount of annual final compensation is limited to the amount set forth under Section 401(a)(17).
For additional information call 800-786-6464 to speak with a LACERA Retirement Benefits Specialist or visit irs.gov.
Members Affected by 401(a)(17) Limits May Be Subject to Section 415(b) Limits At Retirement
Highly compensated members who first entered LACERA membership on or after January 1, 1990 are subject to IRC Section 415(b) limits on the amount they can receive annually from LACERA's defined benefit plan. (Plan A is exempt from Section 415(b) limits.) The County-funded and administered Replacement Benefit Plan (RB Plan) pays the difference when a retiree's annual LACERA allowance exceeds the Section 415(b) annual dollar limit.