Table of Contents
- Timely and Accurate Employer Reporting
- Annual Limits 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 Contriubution Increases for 2023
- 2022 A Year In Review
- Employer & Member Webinars
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.
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
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:
- Access the ORBIT Employer Self-Service page.
- Under “Reporting” click “Check Retired Status.”
- 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.