Internal Revenue Code (IRC) section 401(a)17 limits 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 maximum of the limit 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 2024 was based on the Calendar Year 2023 limit set by the IRS. The FY2025 compensation limit is based on the IRS’ notice for CY2024.
- For members whose membership date is before 07/01/1996, the compensation limitation for FY2025 is $505,000.
- For members whose membership date is on or after 07/01/1996, the compensation limitation for FY2025 is $345,000.
>> View a listing of current and historical maximum annual compensation IRS limits.
Because these are IRS regulations the employer is ultimately responsible for knowing the maximum compensation limits, 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 from the ASRS will include the amount of any 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 is important to inform members that these annual limits cap the salary used in their pension calculation.
If you have an employee who is a high earner and would like a benefit estimate or has any questions about how their benefit is calculated, please direct them to contact the ASRS by telephone at (602)240-2100. This number is only valid for specific accounts that require manually calculated estimates. All other calls will be rerouted to the general number.
By Genevieve McBride, Employer Relations
Published 7.02.24
