To achieve and maintain tax-qualified status, retirement plans such as LACERA’s must meet requirements set forth in the Internal Revenue Code (IRC). IRC Section 415(b) limits the amount an individual can receive from a tax-qualified defined benefit plan (such as LACERA's) each year.
415(b) limits apply to a small percentage of retired Plan A, B, and C members as described below.
LACERA has established a process for identifying and testing retirement benefits that may exceed the 415(b) limit for the year. Factors that determine if the limit applies include income, age, mortality tables, taxable and nontaxable contributions, service credit purchases, marital status, and several other factors.
- Plan A members are exempt from Section 415(b) limits, except in some instances where a domestic partner is the beneficiary.
- Plans B and C: A member’s highest final average compensation (FAC) over a specified time period is one of the factors used for determining monthly benefits as well as testing benefits under the 415(b) rules. How FACS are applied depends on plan and membership date.
Since LACERA benefits are promised under the County Employees Retirement Law of 1937, members subject to 415(b) limits will still receive their maximum allowable benefit through the County-funded and administered Replacement Benefit Plan (RB Plan), which pays the portion of the LACERA benefit that exceeds the 415(b) limit. If the testing confirms that any member’s benefits paid by LACERA will exceed the annual limit, that member is enrolled in the RB Plan.
Replacement Benefit Plan Payments
If you are subject to 415(b) limits and enrolled in the RB Plan, you will continue to receive your maximum allowable retirement benefit, except that it will be paid in two separate payments—one from LACERA and the other from the County.