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 compensation limits differ depending on an individual member’s enrollment date.
The maximum compensation limits are set by the Internal Revenue Service by calendar year while ASRS operates on a fiscal year that begins on July 1st and ends on June 30th of the following 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 compensation limit for Fiscal Year 2025 was based on the Calendar Year 2024 limit set by the IRS since FY2025 began on July 1, 2024. The FY2026 compensation limit is based on the IRS’ notice for CY2025 since it begins on July 1, 2025.
•For members whose membership date is before 07/01/1996, the compensation limitation for FY2025 is $520,000.
•For members whose membership date is on or after 07/01/1996, the compensation limitation for FY2025 is $350,000.
>> 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 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 base the average monthly salary used in benefit estimates and retirement calculation on the annual maximum compensation amounts set by the IRS, 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 Member Advisory Center telephone number (602) 240-2000.
