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 2020 is $109,746.34. 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.