Compensation Limits
Plan G members are subject to an annual compensation limit for calculating retirement benefits under the California Public Employees’ Pension Reform Act of 2013 (PEPRA), Sections 7522.10 and 7522.32.
The compensation limit is adjusted annually, based on the changes to the Consumer Price Index for All Urban Consumers: U.S. City Average. Each fall, the California Actuarial Advisory Panel (CAAP) publishes an advisory letter providing the PEPRA compensation limit that will apply for the following calendar year effective January 1.
If You Reach the Cap
If your annual earnings reach the maximum amount allowed that year under PEPRA, LACERA will stop deducting retirement contributions for the rest of the year. Deductions for contributions will resume the following January. You will still receive service credit for earning compensation for which a contribution would have been made, had it not been for the compensation limit.
Final Average Compensation Calculation
Your final average compensation (FAC) is one of the factors (along with retirement plan, age at retirement, and amount of service credit) used to calculate your retirement allowance. It is based on the average of your highest scheduled earnings over a consecutive 36-month period.
Example:
A member joined LACERA on April 1, 2013, and retired on March 30, 2025. Their highest 36-month period of consecutive earnings for the FAC calculation is their last three years of employment.
36-Month FAC Calculation and PEPRA Annual Compensation Limit Application
To determine the FAC and applicable PEPRA compensation limits, the member’s 36-month period of earnings are divided into their three highest consecutive 12-month earnings periods by year in column 1. Those earning periods are further broken down by semimonthly pay period ending dates (4/15/2022 for the 4/1/2022 to 4/15/2022 pay period, and 3/31/2023 for the 3/16/2023 to 3/31/2023 pay period).
| 12-Month Earnings Periods | Total Scheduled Compensation | Applied Compensation Limit Year | Applied Compensation Limit |
|---|---|---|---|
| 4/15/22 to 3/31/23 | $170,000 | 2022 | $161,969 |
| 4/1/81 – 3/31/22 | $190,000 | 2023 | $175,250 |
| 4/1/22 – 3/31/23 | $200,000 | 2024 | $181,734 |
| Three-year average of scheduled compensation | $186,666.67 | Three-year average of scheduled compensation | $172,984.33 |
| Monthly FAC (three-year average ÷ 12) | $14,415.36 | ||
Here’s how the calculation works.
- For the first pay period range, 4/15/2022 to 3/31/2023, the member’s total scheduled compensation was $170,00.
- The PEPRA compensation limit for that 12-month consecutive period is determined based on the calendar year in which the pay period begins, and it applies to the entire 12-month period. So, the compensation limit year is 2022 and the compensation limit is $161,969.
(If the FAC range were from 1/15/2022 to 12/31/2022, the 2022 annual compensation limit would apply to all the pay periods, and the new annual compensation limit would apply starting with the 1/15/2023 pay period.)
- For the FAC calculation, all three years of the member’s scheduled compensation are averaged, which is $186,666.67.
- To determine if the compensation limit applies, the three years of compensation limits are also averaged, which is $172,984.33.
- Since the average of scheduled compensation in column 2 is higher than the average amount under compensation limits in column 4, the capped amount of $172,984.33 is used for the member’s FAC. That amount is divided by 12 to provide the member’s monthly FAC of $14,415.36.