As a member of TSERS, employees contribute six percent of their monthly income toward their retirement. If the employee receives significant salary increases in the years before retirement or over the course of their career, their monthly retirement benefit at retirement may exceed what their contributions would be expected to fund. If an employee receives significant salary increases in the years before retirement or over the course of their career, their monthly retirement benefit at retirement may exceed what their contributions would be expected to fund. Significant late-career promotions, conversion of benefits into compensation, and leave payouts at retirement may also cause monthly retirement benefits to exceed what your employees’ contributions would be expected to fund. The Contribution-Based Benefit Cap was created to protect this system for current and future retirees, by providing a method for the payment of these unforeseen costs.

If an employee retires with an average final compensation (AFC) of $119,000 or more (adjusted annually for inflation), they may fall under a contribution-based benefit cap.

If an employee was first hired before January 1, 2015, their last 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 will provide a statement of the cost of the additional contribution required to pay for the benefit in excess of the cap.

If an employee was first hired on or after January 1, 2015, their employer may choose whether or not to pay this additional contribution; if the employer chooses not to pay, the employee will be required to accept a benefit reduced to the benefit cap unless they pay the additional contribution. The Retirement Systems Division will notify the employee and employer and will provide a statement of the cost of the additional contribution required to pay for their benefit in excess of the cap, along with the deadline to submit.

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If an employee is a highly compensated employee, their TSERS benefits may be subject to the Internal Revenue Code (IRC) section 415(b) annual pension benefit limit. The determination of whether the retirement benefit will be subject to the limit can only be made at retirement. The limit varies every year, so the benefit could be affected one year but not the next. The limit varies each year and is set by the IRS. The limit is affected by many factors that were established by the IRS that may or may not apply to a particular individual.

The 2013 General Assembly established a Qualified Excess Benefit Arrangement (QEBA) fund to pay the part of a retiree’s retirement allowance that exceeds the limit. Members hired prior to January 1, 2015, are eligible to receive benefit payments from the QEBA fund. If QEBA-eligible members retire after August 1, 2016, the employer shall reimburse the QEBA fund in the amount of any supplemental payment made to the payee.