One of the most important employer responsibilities when reporting ASRS contributions is ensuring that compensation subject to the IRS maximum compensation limits is reported accurately. While these limits affect a relatively small number of employees, incorrect reporting can have a significant impact on member benefits, employer records, and future retirement calculations.
What Are the 401(a)(17) and 415 Limits?
The Internal Revenue Service (IRS) establishes annual limits on the amount of compensation that can be considered for retirement plan purposes.
IRC Section 401(a)(17) Compensation Limit
Internal Revenue Code (IRC) Section 401(a)(17) limits the amount of compensation that can be used when calculating retirement contributions and benefits. Once a member reaches the applicable compensation limit for the fiscal year, no additional ASRS retirement contributions should be withheld or reported on compensation above that limit.
For ASRS employers, the applicable limit depends on the member's ASRS membership date. The IRS adjusts these limits periodically for inflation, and ASRS publishes the updated limits each fiscal year. Arizona law also incorporates these annual adjustments through A.R.S. § 38-746(D).
• For members whose membership date is before 07/01/1996, the compensation limitation for FY2026-2027 is $535,000.
• For members whose membership date is on or after 07/01/1996, the compensation limitation for FY2026-2027 is $360,000.
IRC Section 415 Limit
IRC Section 415 establishes additional limits on retirement benefits and contributions under qualified retirement plans. While ASRS administers these requirements, accurate employer reporting remains critical to ensuring members receive the correct benefit calculations and that ASRS remains compliant with federal requirements.
Why Is Accurate Reporting So Important?
When compensation is reported incorrectly, the impact can extend far beyond a single payroll cycle.
Accurate compensation reporting helps ensure:
• Member contributions are calculated correctly.
• Employer contributions are reported correctly.
• Retirement benefits are based on accurate salary information.
• Member service and compensation records remain accurate throughout their career.
• Time-consuming corrections and adjustments are minimized.
• ASRS remains compliant with state and federal retirement plan requirements.
Simply put, the compensation you report today helps determine the retirement benefits a member may receive years from now. An incorrect compensation amount can result in contribution discrepancies, member inquiries, correction requests, and additional administrative work for both the employer and ASRS.
Employer Responsibilities
Employers are responsible for monitoring employee compensation throughout the fiscal year and ensuring that retirement contributions are not withheld or reported on compensation above the applicable maximum compensation limit.
Best practices include:
• Monitoring employees who may approach the annual limit.
• Reviewing payroll system configurations annually.
• Confirming that compensation limits are updated at the beginning of each fiscal year.
• Reconciling contribution reports regularly to identify potential issues early.
• Contacting ASRS when questions arise before submitting corrections.
Taking proactive steps throughout the year can prevent significant adjustments later and help ensure a smooth fiscal year-end close.
Resources Available
ASRS provides several resources to help employers understand and apply maximum compensation limits correctly:
• Max Compensation Limits information on the ASRS website
• Employer Reference Materials
• Reporting resources and guides
We encourage employers to review these resources annually, especially before the start of a new fiscal year and during year-end payroll processing.
A Small Detail with a Big Impact
While only a limited number of members may reach the annual compensation limits, accurate reporting is essential for protecting the integrity of member records and retirement benefits.
By monitoring compensation limits, applying the correct reporting practices, and utilizing available ASRS resources, employers help ensure that members receive the benefits they have earned and that ASRS records remain accurate and compliant.
Thank you for your continued partnership and commitment to accurate reporting. If you have any questions, please submit a secure message, send us a chat, or call the New Employer Services Line! 602-542-2777.
