As of October 1, 1987 the IRS imposed dollar limits (IRC S.415(b)) on pension benefits paid by tax exempt pension plans which included NYCERS.
Benefits in place at the time were grandfathered and were not subject to the limits. New NYCERS benefits legislated after 1987, however, were subject to the IRS limits. Failure to comply could have cost NYCERS its tax exempt status.
The limits did not become a real issue until the mid 1990's when members started to retire under post 1987 retirement plans (i.e. Chapter 96 Physically Taxing Age 50/25 Plan). Over time more and more members began having their benefits reduced.
In order to provide relief to governmental pension plans the IRS allows them to establish excess benefit plans (IRC S.415(m)) to pay out the difference between the full state statutory benefit and the reduced IRS benefit.
On October 19, 2004 the NYS legislature enacted Chapter 623 of the Laws of 2004 which created excess benefit plans (EBP) for the five New York City pension funds. This chapter also made the EBP's retroactive to July 1, 2000. See text below. As of that date, for all such reduced benefits, NYCERS was authorized to pay the difference via the EBP.
§ 7. This act shall take effect immediately and shall be deemed to
have been in full force and effect on and after July 1, 2000, provided,
however, that this act shall remain in effect only as long as the bene-
fits provided therein are authorized by the Internal Revenue Code;
provided that the state comptroller of the city of New York shall notify
the legislative bill drafting commission upon the occurrence of the
enactment of the legislation provided for in this act in order that the
commission may maintain an accurate and timely effective data base of
the official text of the laws of the state of New York in furtherance of
effecting the provisions of section 44 of the legislative law and
section 70-b of the public officers law.
This statute was enacted only five months before the trustees terminated me as executive director. So I am not sure how NYCERS put this benefit into place.
I suspect, however, the statute was not correctly implemented. At the very least. the reference to Chapter 623 in the old Tier 4 NYCERS SPD Update had a significant error in it.
It stated that the statute only applies to members who retire after July 1, 2000. You can see in statute below that there is no restriction based on retirement date, only based whether the retirement benefit has been reduced by IRC Section 415(b). See paragraph 4 of Section 13-196 below. The old Tier 4 SPD does not appear to be available on the NYCERS website anymore. There now appears to be only a Tier 4 62/5 Plan SPD which makes no mention of the excess benefit plan.
It is clear that in 2005 all retirees who had their benefits reduced because of IRC 415(b) limits should have received notification from NYCERS that they would be receiving benefits payable from the EBP and that the payment would be retroactive to July 1, 2000 if applicable. This is not large group but I suspect that notices were not sent out.
While it would have been very easy to just forget screening for the 415(b) limits going forward, it is not the way that Chapter 623 directed NYCERS to handle the EBP. It is clear that NYCERS needs to maintain separate accounting for benefits paid from the EBP as required by paragraph 3 of Section 13-196. It also appears that NYCERS is not following the law in this case since there is no reference the EBP in the FY-2012 NYCERS CAFR.
This is the NYCERS statute setting up the EBP.
New York City Administrative Code(NEW)
§ 13-196 Excess benefit plan.
1.
As used in this section, the following words and phrases shall have the following meanings, unless a different meaning is plainly required by the context:
(a) "Retirement benefits" shall mean benefits payable to a beneficiary
by the retirement system or a variable supplements fund established
pursuant to this chapter which are subject to the limitations imposed by
section 415(b) of the Internal Revenue Code.
(b) "Beneficiary" shall mean a person who is receiving retirement
benefits from the retirement system.
(c) "Excess benefit plan" shall mean the excess benefit plan
established by this section for the sole purpose of paying benefits as
permitted under section 415(m) of the Internal Revenue Code.
(d) "Eligible participant" shall mean a beneficiary who is entitled to
replacement benefits from the excess benefit plan for a plan year in
accordance with subdivisions four and five of this section.
(e) "Replacement benefits" shall mean the benefits payable by the
excess benefit plan to an eligible participant as determined pursuant to
subdivision five of this section.
(f) "Internal Revenue Code" shall mean the Federal Internal Revenue
Code of 1986, as amended.
(g) "Plan year" shall mean the limitation year of the retirement
system as provided in section six hundred twenty of the retirement and
social security law.
2.
There is hereby established an excess benefit plan, the sole
purpose of which shall be to provide replacement benefits, as permitted
by section 415(m) of the Internal Revenue Code, to beneficiaries whose
annual retirement benefits have been reduced because such benefits
exceed the limitations imposed by section 415(b) of the Internal Revenue
Code. The excess benefit plan shall be administered by the board of
trustees of the retirement system.
3.
There is hereby established a fund to be known as the excess
benefit fund which shall be maintained for the sole purpose of providing
replacement benefits to eligible participants in the excess benefit plan
established by this section, as permitted under section 415(m) of the
Internal Revenue Code. Such fund shall consist of such employer
contributions as shall be made thereto pursuant to subdivision six of
this section. Such contributions to the excess benefit fund shall be
held separate and apart from the assets held by the other funds of the
retirement system, provided, however, that the assets of the excess
benefit fund may be invested with the other retirement system assets,
but such excess benefit fund assets shall be accounted for separately
from the other retirement system assets.
4.
All beneficiaries of the retirement system whose retirement
benefits for a plan year are being reduced because of section 415(b) of
the Internal Revenue Code shall be eligible participants in the excess
benefit plan for that plan year. Participation in the excess benefit
plan shall be determined for each plan year. No beneficiary of the
retirement system shall be an eligible participant in the excess benefit
plan for any plan year for which his or her retirement benefits are not
reduced because of section 415(b) of the Internal Revenue Code.
5.
(a) For each plan year in which a beneficiary is an eligible
participant in the excess benefit plan, such eligible participant shall
receive replacement benefits from the excess benefit plan equal to the
difference between the full amount of the retirement benefits otherwise
payable to the eligible participant for that plan year prior to any
reduction because of section 415(b) of the Internal Revenue Code, and
the retirement benefits payable to the eligible participant for that
plan year as reduced because of section 415(b) of the Internal Revenue
Code. No replacement benefits for any plan year shall be paid pursuant
to this subdivision to any beneficiary who is not receiving retirement
benefits from the retirement system for that plan year.
(b) Replacement benefits pursuant to this section shall be paid at the
same time and in the same manner as the retirement benefits which are
being replaced. At no time shall an eligible participant be permitted
directly or indirectly to defer compensation under the excess benefit
plan.
6.
(a) The required employer contributions to the excess benefit fund
for each plan year shall be an amount, as determined by the actuary,
which is necessary to pay the total amount of replacement benefits that
are payable pursuant to this section to eligible participants for that
plan year.
(b) Such required employer contributions shall be paid into the excess
benefit fund from an allocation of the employer contribution amounts
paid by the city and other public employers pursuant to sections 13-127,
13-130 and 13-131 of this chapter and other applicable provisions of
law. Such allocation of employer contribution amounts shall be paid into
the excess benefit fund at such times and in such amounts as determined
by the actuary.
(c) The benefit liabilities of the excess benefit plan shall be funded
on a plan year to plan year basis, provided, however, that any employer
contributions to the excess benefit fund, including any investment
earnings on such contributions, which are not used to pay replacement
benefits for the current plan year shall be used to pay replacement
benefits for future plan years.
7.
The right of an eligible participant to receive replacement
benefits pursuant to this section, and the replacement benefits received
pursuant to this section, shall be exempt from any state or municipal
tax, and shall not be subject to execution, garnishment, attachment or
any other process whatsoever, and shall be unassignable, except as
otherwise specifically provided for benefits payable by the retirement
system.
8.
Nothing contained in this section shall be construed to mean or
imply that variable supplements payments from a variable supplements
fund established pursuant to this chapter constitute pension or
retirement allowance payments, or that any such variable supplements
fund constitutes a pension or retirement system or fund.
9.
Nothing contained in this section shall be construed as affecting
in any way the eligibility of any person for variable supplements
pursuant to applicable provisions of this chapter.
