All Tiers — Maximum Compensation Limit under IRC 401(a)(17)
Fact Sheet #727

Fact Sheet

The Omnibus Budget and Reconciliation Act of 1993 (OBRA ’93) reduced the maximum compensation limit under IRC 401(a)(17) for employees of the private sector. After a transition period the compensation limit was extended to include eligible participants of governmental state and local plans.

OBRA ’93 reduced the Compensation Limit under IRC 401(a)(17) from $235,840 to $150,000 for employees of private sector Qualified Plans effective for plan years beginning in 1994. The Compensation Limit under IRC 401(a)(17) for plan years beginning in 1993 was $235,840. The $150,000 Compensation Limit under IRC 401(a)(17) is adjusted annually for cost-of-living increases in accordance with IRS guidelines.

While OBRA ’93 reduced the Compensation Limit for the private sector for plan years beginning after December 31, 1993, it provided a “Transitional Rule” for “eligible participants” of governmental state and local plans.

An eligible participant for this purpose is defined as any individual who first became a participant in the plan prior to the first plan year beginning after December 31, 1995.

Therefore, the NYCRS members who joined the retirement system prior to July 1, 1996 (first plan year beginning after 12/31/1995) are exempt from the OBRA ’93 Compensation Limit reductions and are “grandfathered” in the Compensation Limit rules that were in effect as of July 1, 1993 as escalated to the date of benefit determination.

However, members who first joined the plan on or after July 1, 1996 are not eligible for the “grandfathered” Pre-OBRA ’93 Compensation Limit and are subject to the private sector reduced Compensation Limit under OBRA ’93 as escalated to the date of benefit determination

Please note that the Compensation Limits under IRC 401(a)(17) are adjusted annually by the IRS effective as of January 1.

IRS Regulation 1.401(a)(17) – 1(b)(3)(ii) provides that for plans that determine compensation used in determining benefit accruals on the basis of compensation for a 12-consecutive-month period or periods, the annual Compensation Limit to be applied to the compensation for each of those periods is the Compensation Limit in effect for the respective calendar year in which each 12-month period begins.

Therefore, any Compensation Limit under IRC 401(a)(17) as adjusted for cost-of-living is to be applied to the compensation in each 12-month period in the member’s Final Average Salary period and is based on the respective IRC 401(a)(17) Compensation Limit in effect at the beginning of each respective 12-month period.

For example, the annual Compensation Limit for 2016 which became effective as of January 1, 2016 is to be applied to the compensation for any 12-month period beginning in 2016.

The Compensation Limits for 2016 are $265,000 for non-grandfathered members of the NYCRS and $395,000 for grandfathered members of the NYCRS and are unchanged from the respective Compensation Limits for 2015.

The Compensation Limits under IRC 401(a)(17) as adjusted for cost-of-living are also to be applied to any required member contribution during a calendar year so that the member is not charged contributions for any compensation in excess of the respective calendar year Compensation Limit.

The effective grandfathered (Pre-OBRA ’93) and OBRA ’93 Compensation Limits since 1996 are presented below:

Compensation Limits

Calendar Year

Grandfathered

OBRA ‘93

1996 $250,000 $150,000
1997 260,000 160,000
1998 265,000 160,000
1999 270,000 160,000
2000 275,000 170,000
2001 285,000 170,000
2002 295,000 200,000
2003 300,000 200,000
2004 305,000 205,000
2005 315,000 210,000
2006 325,000 220,000
2007 335,000 225,000
2008 345,000 230,000
2009 360,000 245,000
2010 360,000 245,000
2011 360,000 245,000
2012 375,000 250,000
2013 380,000 255,000
2014 385,000 260,000
2015 395,000 265,000

2016

395,000

265,000

2017

400,000

270,000

2018

405,000

275,000