Dear School District Superintendents, Charter School and Education Collaborative Directors, Business Managers, Town Treasurers, Personnel Administrators and Payroll Officers:

As a reminder, the federal Internal Revenue Code 401(a)(17) limits the amount of annual pensionable earnings (“regular compensation”) that can be used in computing benefits for active members of public retirement systems.

With Chapter 131 of the Acts of 2010 (“Pension Reform II”), and for the purpose of imposing a pension “cap,” the Commonwealth further limited the amount of pensionable earnings for Massachusetts public employees whose effective date of membership is after 1/1/2011, setting it at 64% of the annual federal amount, which is indexed on a yearly basis. For calendar year 2013, the limit for Massachusetts public employees is $163,200 (or 64% of the federal limit of $255,000).

At this time, please note:

  • Compliance: To ensure compliance, we are reviewing the regular compensation amounts reported by employers. For calendar year 2012, only one employee with a membership date after January 1, 2011 exceeded the limit. For 2013, if any members are found to have exceeded the limit for the calendar year, we will reach out to their employer to make arrangements to return the excess contributions to the member. We expect very few members, if any, to exceed the limits.
  • Affected earnings: This limit applies only to pensionable earnings, and is based on calendar year compensation, not school year compensation or school year contractual rate.
  • Resources:
    • MTRS website: Regular compensation: Pensionable earnings
    • 2012 limit (PERAC memo #11 of 2012)
    • 2013 limit (PERAC memo #2 of 2013)