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Internal Revenue Code Section 415(b) Limits
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Federal law imposes limits on the annual amount of retirement benefits that you may receive from your retirement plan.
ERSRI is precluded from paying any benefit amounts in excess of these federally imposed limits.
For calendar year 2006, the annual limit for receipt of a pension benefit is $175,000.00.
It is important to note that the dollar limitation applies to the benefit you receive
AND DOES NOT PERTAIN TO OR LIMIT THE AMOUNT of your level of compensation.
State law requires compliance with the IRC §415(b) limits.
Rhode Island General Laws Section 36-8-20 states in part that "(i)t is intended that the retirement system satisfy the requirements of § 401(a) of the Internal Revenue Code of 1986 as amended from time to time, 26 U.S.C. § 401 (hereinafter referred to as the "code"), in form and operation, to the extent that those requirements apply to a governmental plan described in § 414(d) of the code, 26 U.S.C. § 414.
To this end, the following provisions shall be applicable, administered, and interpreted in a manner consistent with maintaining the tax qualification of the retirement system, and shall supersede any conflicting provisions of chapters 8 - 10 of this title, of chapter 16 of title 16, or of chapter 21 of title 45." RIGL § 36-8-20 further states that "(f) Limitation on benefits.
Benefits shall not be payable to the extent that they exceed the limitations imposed by § 415 of the code, 26 U.S.C. § 415."
The calculation of benefits and the application of the limits specified in Section 415 are complicated
and there are numerous factors that must be evaluated in order to determine if a member's annual retirement benefit will exceed the prescribed limits.
To assist you in determining the potential impact this annual limitation will have on your retirement benefit
and any applicable COLA amounts, ERSRI has developed the chart below.
Here is how the chart works: First, choose your appropriate "employer category" (i.e. state employee, teacher, municipal employee). If you are a municipal employee, determine whether or not your employer allows for an annual COLA increase on your pension.
Next, determine your age at retirement. For example, if your city or town does not provide for an annual COLA increase and you retired at age 64, for 2006 your retirement benefit is limited to the annual Code §415 cap of $175,000.00.(Column 4 - Age 64.)
If you retire(d) prior to age 62, the dollar limitation is required to be actuarially reduced based upon your age when you retire(d). The reduction is determined using prescribed mortality tables.
To learn what your adjusted/reduced dollar limit is - just go to the chart and under the applicable "employer category" look to the number that correlates to your retirement age.
The listed number will be the maximum annual benefit you will be able to receive from ERSRI
If you are a retired state employee, teacher or municipal retiree and your pension benefit is subject to an annual COLA increase of 3%, the maximum dollar limit is actuarially reduced to reflect this increase in your benefit.
Here, too, determine the applicable "employer category" and using your age at the time of retirement, you can learn what will be the maximum annual benefit you will receive in 2005.
To reiterate, the calculation of benefits and the application of the limits specified in Section 415 are complicated and there are numerous factors that must be evaluated in order to determine if a member's annual retirement benefit will exceed the prescribed limits.
Factors such as a member's age at retirement, length of service and amount of after-tax contributions made to ERSRI are just a few of these. If you are between the ages of 48 and 58, are highly compensated, have over 28 years of service AND are contemplating retiring in the near future, please contact ERSRI for information on how your retirement benefit may be impacted.
ERSRI also urges you to consult your tax advisor who will be familiar with your own set of facts and circumstances as well as your retirement goals.
Click here for the 415(b) Limits Reference Chart - 2006
Click here for the 415(b) Limits Reference Chart - 2007
Click here for the 415(b) Limits Reference Chart - 2008
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