When calculating and paying retirement benefits, Georgia law and Internal Revenue Service (IRS) regulations place certain limitations on salary earned, salary increases received, and retirement payments received.
Salary Increase Limitations for Your Retirement Benefit Calculation
If a member’s TRS date of membership is on or after 7/1/1984, Georgia law limits the amount of salary increases that can be used to calculate a retirement benefit. The salary limitation is determined annually and is based on the appropriations granted for salary increases by the Georgia General Assembly, or the Board of Regents, plus 2.5%.
When applying the salary limitation in a retirement benefit calculation, first the member’s highest twenty four consecutive months of salary is determined. Then a “base year” is set, which is the year immediately prior to the member’s highest twenty four consecutive months of salary. The first twelve consecutive months of salary is compared to the base year salary. If the increase between the base year salary the first twelve months of salary is more than the law allows, the salary used for computing the member’s retirement is adjusted to the allowable limit. Once adjusted, second twelve months of salary is then compared to the first twelve months of salary and adjusted if necessary to comply with Georgia law. If the member’s salary increases are within the limits, no adjustment is necessary to the salaries used to compute the member’s retirement benefit.
IRS Earnable Compensation and Retirement Benefit Limitations
If the member’s TRS date of membership is on or after 7/1/1996, there is a limit on compensation for the member that can be reported to TRS. Section 415(b) of IRS code places a limit on contributions allowed under a qualified retirement plan. This amount is determined yearly by the IRS, and once a member’s compensation for the “plan year” reaches that limit, the member’s account remains active, but you as the employer can no longer report contributions to TRS for the member. A plan year is the fiscal year July 1 to June 30. For the plan year 7/1/2019 to 7/1/2020, the limit is $280,000.
In addition, if the member’s TRS date of membership is on or after 7/1/1996, Section 415(b) of IRS code also limits the retirement benefit the member may receive in a calendar year. This limit is set yearly by the IRS. For calendar year 2019, the limit is $225,000. Effective January 1, 2020, the limit will be $230,000.