Current through Register 1531, September 27, 2024
(1)
Basic 415 Limitations. Effective as of September 1,
1974, in compliance with the provisions of M.G.L. c. 32, § 5(3)(f) and in
furtherance of the application of the compensation limitations set forth in
M.G.L. c. 32, § 1, member contributions paid to, and retirement benefits
paid from, any retirement system subject to M.G.L. c. 32 (system) shall be
limited to such extent as may be necessary to conform to the requirements of
Internal Revenue Code Section 415 for a qualified governmental pension
plan.
(2)
Limitation
Year. For purposes of Internal Revenue Code Section 415, the
limitation year is the calendar year.
(3)
Participation in Other
Qualified Plans: Aggregation of Limits.
(a) The 415(b) limit with respect to any
member who at any time has been a member in any other defined benefit plan as
defined in Internal Revenue Code Section 414(j) maintained by the member's
employer in this system shall apply as if the total benefits payable under all
such defined benefit plans in which the member has been a member were payable
from one plan.
(b) The 415(c) limit
with respect to any member who at any time has been a member in any other
defined contribution plan as defined in Internal Revenue Code Section 414(i)
maintained by the member's employer in this system shall apply as if the total
annual additions under all such defined contribution plans in which the member
has been a member were payable from one plan.
(4)
Basic 415(b)
Limitation.
(a) Before January 1,
1995, a member may not receive an annual benefit that exceeds the limits
specified in Internal Revenue Code Section 415(b), subject to the applicable
adjustments in that section.
(b) On
and after January 1, 1995, a member may not receive an annual benefit that
exceeds the dollar amount specified in Internal Revenue Code Section
415(b)(1)(A), subject to the applicable adjustments in Internal Revenue Code
Section 415(b) and subject to any additional limits that may be specified in
M.G.L. c. 32. In no event shall a member's annual benefit payable in any
limitation year from a plan subject to this title be greater than the limit
applicable at the annuity starting date, as increased in subsequent years
pursuant to Internal Revenue Code Section 415(d).
(5)
Definition of Annual
Benefit: For purposes of Internal Revenue Code Section 415(b), the
"annual benefit" means a benefit payable annually in the form of a straight
life annuity (with no ancillary benefits) without regard to the benefit
attributable to after-tax employee contributions (except pursuant to Internal
Revenue Code Section 415(n)) and to rollover contributions (as defined in
Internal Revenue Code Section 415(b)(2)(A)). The "benefit attributable" shall
be determined in accordance with Treasury Regulations.
(6)
Adjustments to Basic 415(b)
Limitation for Form of Benefit. If the benefit under the system is
other than the form specified in
840
CMR 3.08(5), then the
benefit shall be adjusted so that it is the equivalent of the annual benefit,
using factors prescribed in Treasury Regulations.
(a) If the form of benefit without regard to
the automatic benefit increase feature is not a straight life annuity or a
qualified joint and survivor annuity, then the preceding sentence is applied by
either reducing the Internal Revenue Code Section 415(b), the benefit limit
applicable at the annuity starting date or adjusting the form of benefit to an
actuarially equivalent amount (determined using the assumptions specified in
Treasury Regulation Section 1.415(b)-1(c)(2)(ii)) that takes into account the
additional benefits under the form of benefit as follows:
(b) For a retirement benefit which is payable
in a form other than a straight life annuity, and the form of benefit is not
subject to Code Section 417(e)(3) for the purposes of applying the limitation
in subsection (4), is adjusted to an actuarially equivalent straight life
annuity that equals:
1. for limitation years
beginning on or after January 1, 2012, the greater of the annual amount of the
straight life annuity (if any) payable under the plan at the same annuity
starting date, and the annual amount of a straight life annuity commencing at
the same annuity starting date that has the same actuarial present value as the
member's form of benefit computed using an interest rate of 5% and the
applicable mortality table under § 417(e)(3) (i.e., Rev.
Rul. 2001-62) (and for years after December 31, 2008, the applicable mortality
tables described in Code Section 417(e)(3)(B) (Notice 2008-85 or any subsequent
Internal Revenue Service guidance implementing Code Section 417(e)(3)(B));
and
2. for limitation years
beginning before January 1, 2012, the annual amount of a straight life annuity
commencing at the same annuity starting date that has the same actuarial
present value as the member's form of benefit computed using whichever of the
following produces the greater annual amount:
a. the interest rate and mortality table or
other tabular factor specified in the plan for adjusting benefits in the same
form; and
b. a 5% interest rate
assumption and the applicable mortality table (Code Section 415, Treas. Reg.
1.415(b)-1(c)(2)).
(c) For a retirement benefit which is payable
in a form other than a straight life annuity, and the form of the benefit is
subject to Code Section 417(e)(3) the benefit for purposes of applying the
limitation in subsection (4), is adjusted to an actuarially equivalent straight
life annuity that equals:
1. if the annuity
starting date is in a plan year beginning after 2005, the annual amount of the
straight life annuity commencing at the same annuity starting date that has the
same actuarial present value as the participant's form of benefit using
whichever of the following produces the greatest annual amount:
a. the interest rate and the mortality table
or other tabular factor specified in the plan for adjusting benefits in the
same form;
b. a 5.5% interest rate
assumption and the applicable mortality table; and
c. the applicable interest rate under
§417(e)(3) (effective January 1, 2013, using the rate in effect for the
second month immediately prior to the first day of the limitation year with a
one-year stabilization period) and the applicable mortality table, divided by
1.05 and for years after December 31, 2008, the applicable mortality tables
described in Code Section 417(e)(3)(B) (Notice 2008-85 or any subsequent
Internal Revenue Service guidance implementing Code Section
417(e)(3)(B);
(7)
Benefits not Taken into
Account for 415(b) Limitation. For purposes of M.G.L. c. 32, the
following benefits shall not be taken into account in applying these limits:
(a) Any ancillary benefit which is not
directly related to retirement income benefits;
(b) That portion of any joint and survivor
annuity that constitutes a qualified joint and survivor annuity;
(c) Any other benefit not required under
Internal Revenue Code Section 415(b)(2) and Regulations thereunder to be taken
into account for purposes of the limitation of Internal Revenue Code Section
415(b)(1).
(8)
Other Adjustments in 415(b) Limitation.
(a) In the event the member's retirement
benefits become payable before age 62, the benefit is limited to:
1. if the annuity starting date is in a
limitation year beginning before January 1, 2012, the annual amount of a
benefit payable in the form of a single life annuity commencing at the member's
annuity starting date that is the actuarial equivalent of the dollar limitation
determined, with actuarial equivalence computed using whichever of the
following produces the smaller annual amount:
a. the interest rate and mortality table or
other tabular factor specified in the plan for determining actuarial
equivalence for early retirement purposes; or
b. a 5% interest rate assumption and the
applicable mortality table;
2. if the annuity starting date is in a
limitation year beginning on or after January 1, 2012, and the plan does not
have an immediately commencing straight life annuity payable at both age 62 and
the age of benefit commencement, the annual amount of a benefit payable in the
form of a straight life annuity commencing at the member's annuity starting
date that is the actuarial equivalent of the dollar limitation, with actuarial
equivalence computed using a 5% interest rate assumption and the applicable
mortality table and expressing the member's age based on completed calendar
months as of the annuity starting date; and
3. if the annuity starting date is in a
limitation year beginning on or after January 1, 2012, and the plan has an
immediately commencing straight life annuity payable at both age 62 and the age
of benefit commencement, the lesser of:
a. the
adjusted dollar limitation determined in accordance with
840
CMR 3.08(a)2.; and
b. the product of the dollar
limitation multiplied by the ratio of the annual amount of the immediately
commencing straight life annuity under the plan at the member's annuity
starting date to the annual amount of the immediately commencing straight life
annuity under the plan at age 62, both determined without applying the
limitations of Code Section 415. Code Section 415; Treas. Reg. 1.415(b)-1(d).
(b) In the
event the member's benefit is based on at least 15 years of service as a
full-time employee of any police or fire department or on 15 years of military
service, the adjustments provided for in subsection a. above shall not
apply.
(c) The reductions provided
for in
840
CMR 3.08(8)(a) shall not be
applicable to pre-retirement disability benefits or pre-retirement death
benefits.
(9)
Less than Ten Years of Participation or Service Adjustment for
415(b) Limitations. The maximum retirement benefits payable to any
member who has completed less than ten years of service shall be the amount
determined under
840
CMR 3.08(4), as adjusted
under
840
CMR 3.08(6) and/or (8),
multiplied by a fraction, the numerator of which is the number of the member's
years of participation and the denominator of which is ten. The limit under
840
CMR 3.08(10) (concerning
the $10,000 limit) shall be similarly reduced for any member who has accrued
less than ten years of service, except the fraction shall be determined with
respect to years of service instead of years of participation. The reduction
provided by
840
CMR 3.08(9) cannot reduce
the maximum benefit below 10% of the limit determined without regard to this
subsection. The reduction provided for in
840
CMR 3.08(9) shall not be
applicable to pre-retirement disability benefits or pre-retirement death
benefits.
(10)
Ten
Thousand Dollar Limit. Notwithstanding the foregoing, the
retirement benefit payable with respect to a member shall be deemed not to
exceed the 415 limit if the benefits payable, with respect to such member under
this system and under all other qualified defined benefit pension plans to
which the member's employer contributes, do not exceed $10,000 for the
applicable limitation year and for any prior limitation year and the employer
has not any time maintained a qualified defined contribution plan in which the
member participated.
(11)
Effect of COLA without a Lump Sum Component on 415(b)
Testing. Effective on and after January 1, 2003, for purposes of
applying the limits under Internal Revenue Code Section 415(b) (the "Limit") to
a member with no lump sum benefit, the following will apply:
(a) a member's applicable Limit will be
applied to the member's annual benefit in the member's first limitation year
without regard to any automatic cost of living adjustments;
(b) to the extent that the member's annual
benefit equals or exceeds the Limit, the member will no longer be eligible for
cost of living increases until such time as the benefit plus the accumulated
increases are less than the Limit;
(c) thereafter, in any subsequent limitation
year, a member's annual benefit, including any automatic cost of living
increases, shall be tested under the then applicable benefit Limit including
any adjustment to the Internal Revenue Code Section 415(b)(1)(A) dollar limit
under Internal Revenue Code Section 415(d), and the Treasury Regulations
thereunder.
(12)
Effect of COLA with a Lump Sum Component on 415(b)
Testing. On and after January 1, 2009, with respect to a member
who receives a portion of the member's annual benefit in a lump sum, a member's
applicable Limit will be applied taking into consideration cost of living
increases as required by Internal Revenue Code Section 415(b) and applicable
Treasury Regulations.
(13)
415(c) Limitations. After-tax member contributions or
other annual additions with respect to a member may not exceed the lesser of
$40,000 (as adjusted pursuant to Internal Revenue Code Section 415(d)) or 100%
of the member's compensation.
(a) Annual
additions are defined to mean the sum (for any year) of employer contributions
to a defined contribution plan, member contributions, and forfeitures credited
to a member's individual account. Member contributions are determined without
regard to rollover contributions and to picked-up employee contributions that
are paid to a defined benefit plan.
(b) For purposes of applying the 415(c)
limits only and for no other purpose, the definition of compensation where
applicable will be compensation actually paid or made available during a
limitation year, except as noted below and as permitted by Treasury Regulation
Section 1.415(c)-2, or successor regulation; provided, however, that member
contributions picked up under Internal Revenue Code Section 414(h) shall not be
treated as compensation.
(c) Unless
another definition of compensation that is permitted by Treasury Regulation
Section 1.415(c)-2, or successor regulation, is specified by a system subject
to this title, compensation will be defined as wages within the meaning of
Internal Revenue Code Section 3401(a) and all other payments of compensation to
an employee by an employer for which the employer is required to furnish the
employee a written statement under Internal Revenue Code Sections 6041(d),
6051(a)(3) and 6052 and will be determined without regard to any rules under
Internal Revenue Code Section 3401(a) that limit the remuneration included in
wages based on the nature or location of the employment or the services
performed (such as the exception for agricultural labor in Internal Revenue
Code Section 3401(a)(2)).
1. However, for
limitation years beginning after December 31, 1997, compensation will also
include amounts that would otherwise be included in compensation but for an
election under Internal Revenue Code Section 125(a), 402(e)(3), 402(h)(1)(B),
402(k), or 457(b). For limitation years beginning after December 31, 2000,
compensation will also include any elective amounts that are not includible in
the gross income of the employee by reason of Internal Revenue Code Section
132(f)(4).
2. For limitation years
beginning on and after January 1, 2007, compensation for the limitation year
will also include compensation paid by the later of 2% months after an
employee's severance from employment or the end of the limitation year that
includes the date of the employee's severance from employment if:
a. the payment is regular compensation for
services during the employee's regular working hours, or compensation for
services outside the employee's regular working hours (such as overtime or
shift differential), commissions, bonuses or other similar payments, and,
absent a severance from employment, the payments would have been paid to the
employee while the employee continued in employment with the employer;
or
b. the payment is for unused
accrued
bona fide sick, vacation or other leave that the
employee would have been able to use if employment had continued.
Any payments not described in 840 CMR 3.08(13)(c)2.are not
considered compensation if paid after severance from employment, even if they
are paid within 21/2 months following severance from employment, except
for payments to the member who does not currently perform services for the
employer by reason of qualified military service (within the meaning of section
414(u)(1) of the Internal Revenue Code) to the extent these payments do not
exceed the amounts the individual would have received if the member had
continued to perform services for the employer rather than entering qualified
military service.
A member who is in qualified military service (within the
meaning of section 414(u)(1) of the Internal Revenue Code) shall be treated as
receiving compensation from the employer during such period of qualified
military service equal to:
(i) the
compensation the member would have received during such period if the member
were not in qualified military service, determined based on the rate of pay the
member would have received from the employer but for the absence during the
period of qualified military service; or
(ii) if the compensation the member would
have received during such period was not reasonably certain, the member's
average compensation from the employer during the 12 month period immediately
preceding the qualified military service (or, if shorter, the period of
employment immediately preceding the qualified military service).
3. Back pay, within the
meaning of Treasury Regulation Section 1.415(c)-2(g)(8), shall be treated as
compensation for the limitation year to which the back pay relates to the
extent the back pay represents wages and compensation that would otherwise be
included under this definition.
(14)
Service Purchases under
Internal Revenue Code Section 415(n). Effective for permissive
service credit contributions made in accordance with the applicable provisions
of M.G.L. c. 32, in limitation years beginning after December 31, 1997, if a
member makes one or more contributions to purchase permissive service credit
under a plan, then the requirements of Internal Revenue Code Section 415(n)
will be treated as met only if:
(a) the
requirements of Internal Revenue Code Section 415(b) are met, determined by
treating the accrued benefit derived from all such contributions as an annual
benefit for purposes of Internal Revenue Code Section 415(b), or
(b) the requirements of Internal Revenue Code
Section 415(c) are met, determined by treating all such contributions as annual
additions for purposes of Internal Revenue Code Section 415(c).
(c) For purposes of applying 840 CMR
3.08(14), the system will not fail to meet the reduced limit under Internal
Revenue Code Section 415(b)(2)(C) solely by reason of 840 CMR 3.08(14) and will
not fail to meet the percentage limitation under Internal Revenue Code Section
415(c)(1)(B) solely by reason of 840 CMR 3.08(14).
(d) For purposes of 840 CMR 3.08(14) the term
"permissive service credit" means service credit:
1. recognized by the system for purposes of
calculating a member's benefit under the system;
2. which such member has not received under
the system; and
3. which such
member may receive only by making a voluntary additional contribution, in an
amount determined under the system, which does not exceed the amount necessary
to fund the benefit attributable to such service credit.
Effective for permissive service credit contributions made in
limitation years beginning after December 31, 1997, such term may include
service credit for periods for which there is no performance of service, and,
notwithstanding 840 CMR 3.08(14)(d)2., may include service credited in order to
provide an increased benefit for service credit which a member is receiving
under the system.
(e) The system will fail to meet the
requirements of 840 CMR 3.08(14) if:
1. more
than five years of nonqualified service credit are taken into account for
purposes of 840 CMR 3.08(14)(e); or
2. any nonqualified service credit is taken
into account under 840 CMR 3.08(14)(e)2. before the member has at least five
years of participation under the plan.
(f) For purposes of 840 CMR 3.08(14)(e),
effective for permissive service credit contributions made in limitation years
beginning after December 31, 1997, the term "nonqualified service credit" means
permissive service credit other than that allowed with respect to:
1. service (including parental, medical,
sabbatical, and similar leave) as an employee of the Government of the United
States, any State or political subdivision thereof, or any agency or
instrumentality of any of the foregoing (other than military service or service
for credit which was obtained as a result of a repayment described in Internal
Revenue Code Section 415(k)(3));
2.
service (including parental, medical, sabbatical, and similar leave) as an
employee (other than as an employee described in clause (1)) of an education
organization described in Internal Revenue Code Section 170(b)(1)(A)(ii) which
is a public, private, or sectarian school which provides elementary or
secondary education (through grade 12), or a comparable level of education, as
determined under the applicable law of the jurisdiction in which the service
was performed,
3. service as an
employee of an association of employees who are described in clause (1);
or
4. military service (other than
qualified military service under Internal Revenue Code Section 414(u))
recognized by such governmental plan.
In the case of service described in clause (1), (2), or (3),
such service will be nonqualified service if recognition of such service would
cause a member to receive a retirement benefit for the same service under more
than one plan.
(g)
In the case of a trustee-to-trustee transfer after December 31, 2001, to which
Internal Revenue Code Section 403(b)(13)(A) or Internal Revenue Code Section
457(e)(17)(A) applies (without regard to whether the transfer is made between
plans maintained by the same employer):
1.
the limitations of 840 CMR 3.08(14)(e) will not apply in determining whether
the transfer is for the purchase of permissive service credit; and
2. the distribution rules applicable under
federal law to the system will apply to such amounts and any benefits
attributable to such amounts.
(h) For an eligible member, the limitation of
Internal Revenue Code Section 415(c)(1) shall not be applied to reduce the
amount of permissive service credit which may be purchased to an amount less
than the amount which was allowed to be purchased under the terms of the system
as in effect on August 5, 1997. For purposes of this paragraph an eligible
member is an individual who first became a member in the plan before January 1,
1998.
(15)
Modification of Contributions for 415(c) and 415(n)
Purposes. Notwithstanding any other provision of law to the
contrary, the system may modify a request by a member to make a contribution
under M.G.L. c. 32 if the amount of the contribution would exceed the limits
provided in Internal Revenue Code Section 415 by using the following methods:
(a) If the law requires a lump sum payment
for the purchase of service credit, the system may establish a periodic payment
plan for the member to avoid a contribution in excess of the limits under
Internal Revenue Code Section 415(c) or 415(n).
(b) If payment pursuant to 840 CMR
3.08(15)(a) will not avoid a contribution in excess of the limits imposed by
Internal Revenue Code Section 415(c) or 415(n), the system may either reduce
the member's contribution to an amount within the limits of those sections or
refuse the member's contribution.
(16)
Repayments of
Cashouts. Any repayment of contributions (including interest
thereon) to the system with respect to an amount previously refunded upon a
forfeiture of service credit under the system or another governmental plan
maintained by the State or a local government within the State shall not be
taken into account for purposes of Internal Revenue Code Section 415, in
accordance with applicable Treasury Regulations.
(17)
Reduction of Benefits
Priority. Reduction of benefits and/or contributions to all plans,
where required, shall be accomplished by first reducing the member's benefit
under any defined benefit plans in which the member participated, such
reduction to be made first with respect to the plan in which the member most
recently accrued benefits and thereafter in such priority as shall be
determined by the plan and the plan administrator of such other plans, and
next, by reducing or allocating excess forfeitures for defined contribution
plans in which the member participated, such reduction to be made first with
respect to the plan in which the member most recently accrued benefits and
thereafter in such priority as shall be established by the plan and the plan
administrator for such other plans provided, however, that necessary reductions
may be made in a different manner and priority pursuant to the agreement of the
plan and the plan administrator of all other plans covering such
member.
(18)
Amendment. Nothing contained in 840 CMR 3.08 will
limit the Legislature from modifying benefits to the extent such modifications
are permissible by applicable state and federal law.
