Internal Revenue Code (IRC) section 401(a)17 is a limit on compensation beyond which no further retirement contributions may be deducted from an employee’s earnable salary for a given year. This limit applies to all ASRS members, but the actual maximum differs depending on the member’s enrollment date.
The maximum compensation limits are set by the Internal Revenue Service by calendar year. Per Arizona Revised Statute (ARS) 38-746(D), the adjustment under this subsection for a calendar year applies to annual compensation for the fiscal year of ASRS that begins with or within the calendar year. That means the current compensation limit for Fiscal Year 2023 is based on the Calendar Year 2022 limit set by the IRS. The FY2024 compensation limit is based on the IRS’ notice for CY2023.
For members with a membership date before 07/01/1996, the compensation limitations for FY2023 is $450,000, and $305,000 for membership date beginning on or after 07/01/1996. For FY2024, those limits increase to $490,000 and $330,000, respectively.
View a listing of current and historical maximum annual compensation IRS limits.
Because these are Internal Revenue regulations, the employer is ultimately responsible for being aware of the maximum compensation limits and their employees’ salaries and stopping ASRS retirement contributions when the maximum is met. As a courtesy, the ASRS sends a notification via secure message when our reports identify members who have met or exceeded the maximum compensation limits.
The notification will include the amount of excess contributions that need to be credited and returned to the employer and member and a reminder to stop deducting retirement contributions and only remit Long Term Disability contributions for the remainder of the fiscal year.
This limitation is determined by the IRS and does not impact the service credit earned with the ASRS; however, it does mean that the ASRS must manually calculate the salary based on data confirmed by the employer. When a member retires, the ASRS will calculate the member’s salary used for the ASRS retirement calculation based on the annual maximums, not the actual salary the member received above the annual limits. It’s important to make members aware that the salary used in their pension calculation is capped by these annual limits.
If your employee has any questions about how their benefit is calculated, please direct them to contact the ASRS by telephone or secure message and ask for a Team Lead or Supervisor to review their benefit estimate with them.
Written by Genevieve McBride, Employer Relations
Published May 2023
