Contribution-Based Benefit Cap
Members contribute six percent of their monthly income towards retirement. If the member receives significant salary increases in the years prior to retirement or over the course of their career, their monthly retirement benefit at retirement may exceed what their contributions will fund.
Significant late-career promotions, conversion of benefits into compensation and leave payouts at retirement may also cause monthly retirement benefits to exceed what the member contributions would be expected to fund. The Contribution-Based Benefit Cap was created to protect the system for current and future retirees by providing a method for the payment of these unforeseen costs. If a member retires with an Average Final Compensation (AFC) of $100,000 or more (adjusted annually for inflation), they may fall under a contribution-based benefit cap.
Member Hired Before January 1, 2015
If a member was first hired before January 1, 2015, their employer will be required to pay the additional contribution if it is determined that their allowance is in excess of the cap and is subject to an adjustment. The Retirement Systems Division will notify the employer and provide a cost statement of the additional contribution required to pay for the benefit in excess of the cap.
Member Hired On or After January 1, 2015
If a member was first hired on or after January 1, 2015, the Retirement Systems Division will notify the member, providing a cost statement of the additional contribution required to pay for their benefit in excess of the cap, along with a deadline to submit. In some situations, the employer may offer to pay part or all of the required contributions. If the contribution is not paid, the member will be required to accept a benefit reduced to the benefit cap.
Estimating Potential CBBC Impact
Your agency can utilize the statutory formula to help determine the likelihood that the retirement allowance of a member might exceed the contribution-based benefit cap (CBBC). The CBBC formula is as follows:
Benefit Formula = Average Final Compensation (AFC) X Multiplier X Service
CBBC Formula = Contributions / Annuity Factor X CBBC Factor
If Benefit is greater than CBBC, the difference is multiplied by the Annuity Factor
The current CBBC Factor for TSERS is 4.5 and LGERS is 4.7. The current multiplier for TSERS is 0.0182 and LGERS is 0.0185. The AFC threshold for 2024 is $130,764.73. The listing of current annuity factors found here for retirements on or after Jan. 1, 2023. You can access the member’s accumulated contribution balance and service history through ORBIT Employer Self-Service (Reporting – View Member Info – View Account History). Please note that the total contribution balance does not include the interest (currently 4%) for the current year.
CBBC FAQs
As a member, you contribute six percent of your monthly income toward your retirement. If you receive significant salary increases in the years before retirement or over the course of your career, your monthly retirement benefit may exceed what your contributions would be expected to fund in retirement. While this scenario is not applicable to the majority of retirees, it is a situation you should be aware of as a possibility depending on your unique circumstances.
If you retired on or after January 1, 2015 as a TSERS or LGERS employee, with an average final compensation (AFC) of $100,000 or more (adjusted annually for inflation), you may fall under the Contribution-Based Benefit Cap which could require an additional contribution to cover your retirement benefit deficit.
The application of the CBBC legislation is different for:
- Those hired before January 1, 2015, and
- Those hired on or after January 1, 2015.
If you were hired before January 1, 2015, and are impacted by the Contrition-Based Benefit Cap (CBBC), your last employer is required to submit the additional contribution to the Retirement Systems Division on your behalf at retirement to cover the gap between what has been paid in and what you are expected to receive in your monthly benefit.
If you were hired on or after January 1, 2015, as a TSERS or LGERS employee and your benefit exceeds the Contribution-Based Benefit Cap (CBBC), you may receive a retirement estimate that explains the possible impact to your retirement benefit. In this estimate, you will be given the retirement benefit calculations for capped and uncapped amounts.
As we receive additional information from your employer during the calculation period, you will receive notification that your monthly retirement benefit is impacted, and you have the option to pay the cost due. This liability amount is contingent upon timely receipt of the employer’s final salary contribution summary report and may be adjusted based on additional information received by the Retirement Systems Division.
Once you receive notification that you are impacted by the CBBC, you will receive a cost due to be paid by a specific date. You have two options to consider:
- You may pay the cost invoice and receive the uncapped AFC monthly retirement benefit. The cost is your responsibility to fund; however, your employer may choose to contribute all or a portion of the cost. The capped calculation benefit amount can be paid during processing time, with a retroactive payment for the difference once the invoice has been paid.
- You can accept the capped retirement monthly benefit amount based on CBBC legislation.
The capped calculation means there is a limit to the final benefit you are eligible to receive based on the contributions that have been paid into your pension. If you elect to make the required payment, you will receive the capped benefit amount until all payment(s) have been received and processed (approx. 90-120 days after your retirement date).
The uncapped calculation refers to the benefit amount that does not take into account a contribution-deficit based on time worked, higher salary or salary increases and/or contributions made. This uncapped calculation may be an option if you make a required payment to cover the unfunded liability of the actual contributions you have paid into the pension system.