ORBIT

Pension Spiking

​Legislation passed by the 2014 General Assembly establishes, effective January 1, 2015, a contribution-based benefit cap (CBBC) on pension benefits for LGERS and TSERS members who retire on or after January 1, 2015, and whose average final compensation (AFC) is $100,000 or higher (adjusted annually for inflation). This legislation was created to control the practice of “pension spiking,” in which a member's compensation substantially increases to create a retirement benefit that is significantly greater than the member's contributions would fund. Significant late-career promotions, conversion of benefits into compensation and leave payouts at retirement may also cause a members' retirement benefit to exceed what the member's contributions would fund.

The Anti-Pension Spiking CBBC approach was created to protect each system for current and future retirees and to prevent all employers in the Retirement Systems from absorbing the additional liabilities caused by compensation decisions made by other employers.

The Retirement Systems has posted Pension Spiking presentations for LGERS and TSERS that provide examples of pension spiking and how employers and employees will be responsible for paying the liability created by causing the pension spike.

Introduction to LGERS Pension Spiking

Introduction to TSERS Pension Spiking

In addition, the Retirement Systems created an Anti-Pension Spiking presentation​ and a one-page summary outlining the highlights of the legislation.

Anti-Pension Spiking presentation

One-page summary

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 2019 is $108,018.05. The listing of current annuity factors can be found here. 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.

Frequently Asked Questions

What is Contribution-Based Benefit Cap (CBBC)?

What is Contribution-Based Benefit Cap (CBBC)?

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.  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 your employer to pay an additional contribution.  

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), this estimate may not reflect the retirement benefit that will be payable. If it is determined your benefit exceeds the CBBC, the options are:

  • your employer may choose whether or not to pay this additional contribution;
  • if your employer chooses not to pay, you may choose to pay the additional contribution; OR
  • you will be paid a reduced benefit based on the CBBC for the lifetime of your benefit.

Should you or your employer choose to pay the additional amount, you will receive the capped benefit amount until all information has been received and processed (approx. 90-120 days after your retirement date).  If the final adjusted additional contribution amount is paid, you will be retroactively paid the uncapped amount.  Please note, the capped amount refers specifically to the lower benefit you are qualified to receive and is directly related to the contributions that have been paid into your pension

What is the capped calculation?

What is the capped calculation?

The capped calculation means there is a ceiling to the final benefit you are qualified to receive and is directly related to the contributions that have been paid into your pension. The capped calculation refers to the maximum benefit limit you are eligible to receive upon retirement, unless you elect to make the required payment. Even if you elect to make the required payment, you will receive the capped benefit amount until all information has been received and processed (approx. 90-120 days after your retirement date).

What is the uncapped calculation?

What is the uncapped calculation?

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.