PERAC Memo #10 - 2006: 2006 limits under Chapter 46 of the Acts of 2002

2006 limits under Chapter 46 of the Acts of 2002

Summary

This memo provides the updated 2006 IRC limits under Chapter 46 of the Acts of 2002: a compensation cap of $220,000 ($325,000 for members who joined prior to 12/31/95) under Section 401(a)(17), and a general benefit limit of $175,000 per year at age 65 under Section 415, both subject to annual indexing and early-retirement reductions. These limits affect only the highest-paid members, so boards should apply them when calculating compensation and benefits for such members but need not take any broader action; questions can be directed to PERAC's Actuary, Jim Lamenzo.

Full Text

Memorandum # 10/2006

M E M O R A N D U M TO: All Retirement Boards FROM: Joseph E. Connarton, Executive Director RE: 2006 limits under Chapter 46 of the Acts of 2002

DATE: January 30, 2006

Prior PERAC Memos (# 27/2002, # 45/2002, and #17/2003) briefly outlined Chapter 46 of the Acts of 2002. This law brought the Massachusetts Retirement Law into compliance with Federal Limitations on the compensation used to calculate retirement allowances and the dollar amounts of retirement allowances. This provision affects only the highest paid employees and will not apply to most retirement systems and most retirement system members.

The regulations regarding Section 401(a)(17) (compensation limit) and Section 415 (benefit limit) of the Internal Revenue Code are quite complex and can vary under individual circumstances. The compensation limit for 2006 is generally $220,000 ($325,000 if a current member became a member prior to 12/31/95). The general benefit limit for 2006 is $175,000 per year for a member retiring at age 65 although this limit is generally reduced for early retirement.
These limitations are indexed each year.

Please contact our Actuary, Jim Lamenzo, if you have any questions.