Retirement Monitor - December 2022

In this issue: Timely and Accurate Employer Reporting; Annual Limits in 2023 for Retirement System Compensation; Update to Salary Cutoff for Monthly "Pension Spiking Watch List"; Volunteer Fire Departments and LGERS Membership; Return-to-Work Earnable Allowance; IRS Contribution Increases for 2023; 2022 A Year In Review; Employer & Member Webinars

Table of Contents

 

 

Timely and Accurate Employer Reporting

Employee and Employer contributions are due via the monthly Contribution Summary Instructions (CSI) by 5:00 p.m. on the 5th business day of the month along with the Monthly ORBIT payroll report. If the 5th falls on a weekend, contributions are due the following business day by 5 p.m. This schedule has been updated to include 2023 dates and is located on our website.

myNCRetirement Tip:  Create a calendar reminder so you meet the required deadlines.

Reminder:  MARS (Member Annual Retirement Statement) is available for active employees who contributed for at least 12 months ending on December 31. We need your help to make sure all eligible members receive this important resource. We ask that you check and correct monthly ORBIT errors as soon as your monthly report posts and take action now to correct any recent error.

⭐Employer-Implemented New Systems and Testing

Are you updating or implementing a new system or vendor? The Retirement Systems Division is here to help with testing. We request that you notify us as soon as possible if you are making a change or upgrade so we can schedule testing that will align with your planned start date. You should expect testing to take at least 60 days.

Annual Limits in 2023 for Retirement System Compensation

Federal and state legal limitations on annual compensation for employees in pension plans apply to several North Carolina retirement plans, including the Teachers’ and State Employees’ Retirement System (TSERS), Local Governmental Employees’ Retirement System (LGERS), Consolidated Judicial Retirement System (CJRS), and Optional Retirement Program (ORP). The limitations may be adjusted from year to year according to Section 401(a)(17) of the Internal Revenue Code. The limitations for calendar (tax) year 2023 are as follows:

  • For any member of TSERS, LGERS or CJRS who was hired before January 1, 1996, or an ORP member hired before July 1, 1996, the annual limit on compensation subject to retirement contributions is $490,000 for calendar (tax) year 2023.
  • For any employee hired on and after January 1, 1996, who is a member or becomes a member of TSERS, LGERS, or CJRS, or an ORP member hired on or after July 1, 1996, the annual limit on compensation subject to retirement contributions is $330,000 for calendar (tax) year 2023.

Since an employee’s membership service is credited based on the months when contributions are received by the retirement system, the employer needs to follow certain steps to ensure that a highly compensated employee receives retirement credit for each month of service after exceeding the annual limit.

Reporting TSERS members:

  • Should be reported through ORBIT Payroll Reporting under the STG plan code from the beginning of the year to the month the member exceeds the annual limit.
  • In the month after the member exceeds the limit, the employee should be reported as STMAX.
  • If the member exceeds the limit in the middle of a month, the monthly salary should be reported as two separate records, one under STG and one under STMAX. The pay period for that month should also be split between the two plan code records.
  • When reporting under STMAX, the salary should be included but no contributions should be reported. Membership service credit is accrued under both plan codes.

Reporting LGERS Members:

  • Should be reported through ORBIT Payroll Reporting under the LOCG plan code from the beginning of the year to the month the member exceeds the annual limit.
  • In the month after the member exceeds the limit, the employee should be reported as LOCMAX.
  • If the member exceeds the limit in the middle of a month, the monthly salary should be reported as two separate records, one under LOCG and one under LOCMAX. The pay period for that month should also be split between the two plan code records.
  • When reporting under LOCMAX, the salary should be included but no contributions should be reported. Membership service credit is accrued under both plan codes.

Reporting ORP Members:

  • Should be reported through ORBIT Payroll Reporting under the ORPG plan code from the beginning of the year to the month the member exceeds the annual limit.
  • In the month after the member exceeds the limit, the employee should be reported as ORPMAX.
  • If the member exceeds the limit in the middle of a month, the monthly salary should be reported as two separate records, one under ORPG and one under ORPMAX. The pay period for that month should also be split between the two plan code records.
  • When reporting under ORPMAX, the salary should be included but no contributions should be reported. Membership service credit is accrued under both plan codes.

If you have any questions regarding employer reporting, please contact the ORBIT Payroll & Reporting Section by e-mail at OER@nctreasurer.com or by phone at 919-814-4590.

 

Update to Salary Cutoff for Monthly "Pension Spiking Watch List"

Each month, the Retirement Systems Division sends reports to employers identifying employees who are most likely to require an additional employer contribution should they retire in the next year. This is sometimes called the “pension spiking watch list.”

Beginning in or around December 2022, many employers will see a reduction in the number of employees identified on this monthly report. Specifically, employees whose prior calendar year of compensation was at least $100,000, but less than $115,000, will no longer be on the report.

This change is being made because of an increase in the actual threshold under law, where if a retiree’s four-year average final compensation exceeds the threshold, the employer may owe a liability. That threshold is increasing from $116,366.68 per year (for retirements effective in 2022) to $126,956.05 per year (for retirements effective in 2023). With this significant increase occurring in the actual threshold under law, the salary cutoff for the “watch lists” is being updated to reduce the number of likely extraneous entries on the monthly reports.

Whether an employee is listed on the monthly report has no bearing on the amount of the liability that the employer may ultimately owe, if any. As further explained in the cover letter that accompanies the monthly reports, the employees included on the list may or may not lead to an employer liability upon retirement. Employers are encouraged to learn more about anti-pension spiking liability calculations at the Retirement Systems’ website and may contact our office with any questions about particular situations.

Volunteer Fire Departments and LGERS Membership

Nonprofit-incorporated fire/rescue departments are sometimes called "volunteer fire departments" (VFDs) but often have paid employees. Based on federal law and IRS guidance, VFDs cannot join the Local and Governmental Employees Retirement System (LGERS) as employing units, because they are not governments, but nonprofit corporations. 

Certain towns in LGERS recently inquired about whether employees of a VFD serving the town's jurisdiction could participate in LGERS as employees of the town if the town agreed to be the formal employer and "lease" the employees to the VFD. 

The North Carolina Retirement Systems (RSD) asked for an analysis by our tax counsel, Groom Law Group. The document listed below contains two pages of summary guidance from RSD and a ten-page memorandum from Groom outlining the relevant issues and questions. RSD urges employers considering a "leased employee" agreement to review the Groom analysis carefully and make their own determination based on the questions raised and understanding the risks of misclassification.

Fire/Rescue Leased Employees Memo

 

 

 

 

As we enter the close of 2022, it’s important to check in on the earnable allowance permitted for a retiree that has returned to work. The calculation of earnings limitations is unique and based on a retiree’s pay history leading up to employment. For 2022, a retiree can earn whichever is greater:

  • 50% of gross pre-retirement salary (excluding termination payments), or
  • $37,240

A retiree who has returned to work can log in to ORBIT, click on View Earnable Allowance in the left navigation and see their earnable allowance for re-employment purposes.

 

 

Federal and State Requirements that Govern Return-to-Work

There are both federal and state requirements that govern the effect on retirement benefits, if any, when a retiree returns to public employment. When there is an effect on benefits, even if it was inadvertent, the consequences can be devastating to retirees and their families. The consequences could include the loss of all retirement benefits and health insurance premiums (including retroactively) and the prospective loss of health coverage. These situations are among the most difficult that we encounter in administering retirement benefits. 

Click here for a summary of all the return-to-work requirements. The requirements seem to be generally well-understood by employees, retirees, and employers. However, in rare situations we observe that retirees misunderstood certain requirements that were critical to their situation. These could include the conditions that must be met in order to begin receiving retirement benefits in the first place under TSERS or LGERS:

  • No Pre-Arrangement: To be eligible for retirement benefits, an active employee cannot establish an agreement to work after retirement for an employer in the same Retirement System. This is known as a “pre-arrangement.” The IRS has described this as meaning that the employee must make “an independent personal decision to permanently sever the employer/employee relationship without any re-employment pre-arrangements.”
  • Termination Required: To be eligible for retirement benefits, an employee must terminate employment, with the “no pre-arrangement” condition described above.
  • Perform No Work: To be eligible for retirement benefits, an employee must perform no work for an employer in the same Retirement System for the statutory period:
    • One month after retirement for LGERS,
    • Six months for TSERS.

The type of work that is performed typically does not matter in this situation. It could be part-time or full-time, temporary, or permanent, W-2 (on payroll) or 1099 (contracted). It still has the potential to invalidate the employee’s entire retirement, even if it is discovered after the fact.

Often employers find themselves in the position of sharing information to help their employees plan for retirement. We urge you to understand these requirements about retirement eligibility and, if there are any questions, direct your employees to counselors on the Retirement System staff.

 

Employer Requirements for Return-to-Work

Effective in 2009, the General Assembly authorized House Bill 642, requiring employers to report all rehired retirees to the Retirement System each month. To assist employers in reporting all rehired retirees and therefore avoiding penalties, the Retirement System offers an online user-friendly procedure to certify employee status under the retirement reemployment laws. To use this tool, you should:

 

  1. Access the ORBIT Employer Self-Service page.
  2. Under “Reporting” click “Check Retired Status.”
  3. Here you are able to upload a list of employee social security numbers which will be run against the Retirement System retiree list to generate a report of members who are actively receiving a benefit from TSERS or LGERS.

Important Points to Remember:

  • Rehired retirees should be reported in ORBIT monthly.
  • Reports should include the appropriate pay period, pay type, plan code and all other applicable fields.
  • Reports must be received by the Retirement System within 90 days of the end of each month in which a beneficiary is reemployed, otherwise the Retirement System is required to assess a 10% penalty of the compensation of the unreported reemployed retirees during the months the employer did not report the reemployed retirees, with a minimum penalty of $25.

The Retirement Systems appreciate your important role in helping us provide accurate information to active members and retirees.

 

 

IRS Contribution Increases for 2023

The Internal Revenue Service (IRS) announced increases to the amount individuals can contribute to their defined contribution plans in 2023. The standard contribution limit for the NC 401(k) Plan and NC 457 Plans (the Plans) is $22,500, up from $20,500.

The catch-up contribution limit for each Plan (for those who are 50+ years of age by December 31, 2023) is $7,500. Therefore, participants in the NC 401(k) Plan and NC 457 Plan who are 50 and older can contribute up to $30,000 in each Plan, starting in 2023. Full details around the new contribution limits for 2023 can be found here on the IRS website.

 

 

One-Time Pension Supplement: Eligible retired members and benefit recipients saw a one-time supplement paid as part of the pension payments for the month of October.

Member Services Call Center Enhancements: A new phone system launch in Q4 that has a streamlined menu and auto-verifies members and benefit recipients. This enhancement also includes a robust call-back assist feature for members.

Operations Meets Demands: The North Carolina Retirement Systems saw an increase in the monthly payee population and the amount paid each month to retirees and benefit recipients.

Opt-In to Go Green: Retirees and benefit recipients can now opt-in to Go Paperless for year-end tax documents. Eligible members will see an alert when logged in to ORBIT with a link to update their delivery preference.

Local Employer Contribution Rates: This year RSD instituted a new method for informing LGERS employers of their contribution rates for the upcoming fiscal year. Instead of sending letters by mail, all the rates are posted on RSD’s website in a searchable PDF file.

Actuarial Valuations of the Retirement Systems as of 12/31/2021: This summary document highlights the number of members in each system, the assets and liabilities and the preliminary employer contribution rates (subject to any enacted changes) effective 7/1/2023.

Legislation Affecting the Retirement Systems: During 2022, the General Assembly enacted several laws with provisions pertaining to the Retirement Systems and the State Health Plan. Some of these provisions become effective in 2023.

Empower Retirement Acquires Prudential: Empower officially acquired the full-service retirement business of Prudential, effective April 1, 2022. Empower is now the plan administrator for the NC Plans. The official press release can be found here, you can reference this FAQ document, and you can click here to review other important information associated with the transition. It has been business as usual, and your employees should not experience any changes with their supplemental retirement account(s).

myNCPlans.com for the NC 401(k) and NC 457 Plans: myNCPlans.com will take you and your employees to the NC Supplemental Plans' website where new employees can enroll in the NC 401(k) and/or NC 457 Plans, and all participants can discover the tools and resources. myNCPlans.com allows 24/7 access to participant accounts and to the Employer Sponsor Website.

NC 403(b) Program Discontinuance: The North Carolina Supplemental Retirement Board of Trustees decided to discontinue the NC 403(b) Program as of December 31, 2022. The North Carolina Department of State Treasurer will continue to focus on the plans we do BEST—the larger, low-cost,* and more popular NC 401(k) and NC 457 Plans. We thank all employers who previously offered the NC 403(b) Program for their partnership during this important transition.
* Source: BenchmarkDC Executive Summary for North Carolina Supplemental Retirement Plans (for the 5 years ending December 31, 2020), CEM Benchmarking, Inc., located at myNCRetirement.com > Governance > Boards of Trustees and Committees > Boards and Committees Meeting Archives > Supplemental Retirement Board of Trustees Meeting—08/26/2021.

Employer and Employee Education Engagement: The North Carolina Retirement Systems set records for engagement in 2022 seeing educating just shy of 80,000 members and employers.

HBR, Benefit Administrators: Live Total Retirement Planning webinars are available for your employees on Thursdays. Morning or afternoon sessions are available. Contact the us at ncretirement@nctreasurer.com with your request.

 

Employer Webinars

MyNCRetirement Employer Training Webinars

Empower Retirement Benefits Webinars

Member Webinars

Retirement Planning Webinars

Empower Retirement Benefits Webinars

 

 

 

 

 

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