Adjusting PERS When Employee Exceeds the Compensation Cap

CSIRosevilleWe have had several questions lately about how to handle PERS reporting when an employee exceeds the compensation cap. The following explains how to adjust the PERS reporting for the employee. Note that this CSI is written for payroll and retirement experts. It is not written as step-by-step instructions, but as a detailed discussion of the process so that you can apply the information to different scenarios. The scenario shown here is a simple example of how a payroll technician can fix an employee who has exceeded the cap BEFORE payroll is locked in. Of course, a retirement expert would review the adjustments prior to submitting the PERS file. It is important to point out that we worked with PERS concerning this CSI, having them review the PERS file containing the edits shown here. They found the file to be accurate.

The first step in determining PERS compensation caps is to know if an employee is a Classic or New PERS member, as the two have different gross limits for PERS. (See the CalPERS Circular for Compensation Limits for more information.) According to PERS, once the gross limit is reached, the county/district should not report employee (EE) or employer (ER) contributions for the rest of the calendar year.

Determining When Gross Limit Is Reached

In the pay period when the employee reaches the cap, the employee will need to have two EPR transactions:

  • From the first to the 15th with contributions
  • From the 16th to the end of the month without contributions

For example, here are the earnings for a New PERS member employee who reached the compensation cap limit for the 2014 calendar year in November. (The employee is a New PERS member who pays into OASDI; therefore, the 2014 compensation limit of $115,064.00 applies.)

Pay Date Pay Rate Earning Amt* Calendar YTD
1/31/2014 $4,124.00 $4,124.00 $4,124.00
02/28/2014 $4,124.00 $4,124.00 $8,248.00
3/31/2014 $4,124.00 $4,124.00 $12,372.00
4/30/2014 $4,124.00 $4,124.00 $16,496.00
5/30/2014 $5,000.00 $5,000.00 $21,496.00
6/30/2014 $5,000.00 $5,000.00 $26,496.00
7/31/2014 $20,000.00 $20,000.00 $46,496.00
8/29/2014 $20,000.00 $20,000.00 $66,496.00
9/30/2014 $20,000.00 $20,000.00 $86,496.00
10/31/2014 $20,000.00 $20,000.00 $106,496.00
11/28/2014 $20,000.00 $20,000.00 $126,496.00

* Pensionable Compensation

Here's a breakdown of the earnings in November as it relates to the cap.

Under the Cap:

Annual Compensation Limit $115,064.00
Calendar YTD for October - $106,496.00
Under the Cap Amount for November $8,568.00

Over the Cap:

November Earnings Amount $20,000.00
Under the Cap Amount for November - $8,568.00
Over the Cap Amount for November $11,432.00

By default, Escape Online calculated the contributions and deductions for the full earnings ($20K), resulting in the following amounts:

  • Deduction PERSN rate is 6% or $1,200.00
  • Contribution PERSN rate is 11.442% or $2,288.40

Pay Detail for November (before adjustments)

That calculation does not take into consideration the cap, though.  PERS requires contributions and deductions to be calculated only on the earnings of $8,568.00 (under the cap). Therefore, the contribution and deduction amounts for the over-the-cap earnings ($11,432.00)  need to be backed out. If I calculate what the contribution and deduction would be for the over-the-cap earnings only, I now have the figures that should not have been included.

  • $11,432.00 x 6% = $685.92
  • $11,432.00 x 11.442% = $1,308.05

In the next two steps, I am going to back out those figures, leaving only the contribution/deduction amounts for the under-the-cap earnings.

Fixing the Contributions/Deductions in the Adjust Payroll Activity When the Cap Is Reached

In Adjust Payroll, I entered a negative Deduction adjustment for $685.92 (using deduction ID PERSN) and a negative Contribution adjustment for $1,308.05 (using contribution ID PERSN) to refund the employee and employer portions for the over-the-cap amounts.

pic_news_RosevilleCSI_retirement_adjustments

Once the over-the-cap amounts are backed out, I can run the snapshot and see that the accurate amounts now stand:

  • $1200.00 (original amount) - $685.92 (adjustment) = $514.08
  • $2288.40 (original amount) - $1308.05 (adjustment) = $980.35

I also want to point out that Escape Online puts an asterisk by each amount, alerting me to the adjustments.

Pay Detail for November (before adjustments)

Fixing the Retirement Lines in the PERS Editor Activity When the Cap Is Reached

In the PERS Editor, I entered two new lines. The first one is for under-the- cap earnings with contributions and deductions, and the second, with over-the-cap earnings, with no contributions or deductions. Then I deleted the original two lines that came from payroll.

November Edits in PERS Editor

Wrapping Up the Calendar Year

For all remaining periods of the 2014 calendar year, you will need to make contribution and deduction adjustments in Adjust Payroll to back out the full PERSN contribution and PERSN deduction (since no contributions and deductions should be reported once the compensation cap is reached). For this employee's example, the only remaining period is December, so in Adjust Payroll, all I had to do was make the following contribution and deduction adjustments to zero them out.

December Deduction and Contribution Adjustments in Adjust Payroll Activity

I also had to take care of the changes in the PERS Editor, where I zeroed out the Mbr rate, Tax Defer MPC and District amounts and deleted the records that were created due to the contribution and deduction adjustments (the one with Pay Code = No Pay Rate).

December Edits in PERS Editor

Following these guidelines, you should be able to adjust the handful of employees that have reached their cap for PERS.