If you’re a University of California Retirement Plan (UCRP) member with many years of service, and you earned a high income while working, Internal Revenue Code (IRC) Section 415(Section 415) may limit the retirement benefit that can be paid from UCRP.  The University of California 415(m) Restoration Plan (or “415(m) Plan” for short) was established to restore the benefit that otherwise would be lost because of the Section 415 limits. 

Here’s what you need to know about how the Section 415 limits may affect your retirement benefit. 

Maximum Benefit Limit

Section 415 restricts the amount of benefits that a tax-qualified defined benefit plan, such as UCRP, can pay a member or survivor.  The limits change periodically based on the Consumer Price Index, and vary depending on:

  • Your age at retirement
  • Your UCRP membership classification
  • Whether you choose to receive monthly retirement income or a lump sum cashout, if eligible
  • Your years of active UCRP membership

Special provisions if you joined UCRP before Jan. 1, 1990

If you joined UCRP before this date and your benefits are limited under Section 415, a “grandfather” provision applies to you. It essentially guarantees that your monthly UCRP retirement benefit will be at least as much as it would have been under the UCRP provisions in effect on Oct. 14, 1987. Under these provisions:

  • The earliest retirement age was 55
  • In most cases, monthly retirement income was based on a lower age factor
  • For members with Social Security, a different Social Security reduction applied
  • The UCRP maximum benefit was 80 percent of a member’s Highest Average Plan Compensation (HAPC)

In addition, the CAP didn’t exist in 1987, so any CAP balance can’t be paid from UCRP. Instead, it will be paid from the 415(m) Plan, and, as a result is not eligible for rollover.

If you have questions, please contact the RASC at 800-888-8267. 

Examples of 415 dollar limits

Here are some examples of the 415 dollar limits that will apply to most members retiring in 2017 who elect monthly retirement income. (If you choose the lump sum cashout, please see the lump sum section below). 

Retirement Age

2017 Annual 415 Dollar Limits*

50

$94,472

55

$130,436

60

$185,082

62+

$215,000

*If you have fewer than ten years of UCRP membership, the 415 dollar limits are reduced by 10 percent for each year less than ten years.

If you’re a Safety member with 15 or more years of qualified Safety service, or a member of the 2013 or 2016 Tier, different limits apply. To learn more, contact the RASC or see the appropriate summary plan description

Calculating the UCRP benefit to which the 415 dollar limit applies

Certain parts of your UCRP benefit aren’t subject to the Section 415 limits, so these amounts are excluded when calculating whether your benefit exceeds the limits. The excluded amounts include any portions of your UCRP benefit attributable to after-tax contributions you made, such as:

  • Payments to establish or reestablish UCRP service credit
  • Payments to convert Tier Two service to 1976 Tier service, with or without Social Security
  • Payments to eliminate a Plan 02 noncontributory offset
  • Monthly contributions you made to UCRP before July 1, 1983

Other factors that are considered in the calculations include:

  • The type of benefit payable (monthly retirement income, lump sum cashout or Capital Accumulation Payment (CAP))
  • Whether there is an eligible survivor who would receive benefits after your death, and his or her age
  • Your retirement income payout option (e.g., the percentage benefit you choose for contingent annuitant benefits that will continue after your death) and the age of any contingent annuitant
  • Previous distributions you’ve taken from UCRP (for example, if you are a rehired retiree, any prior benefit payments you received) 

How the 415(m) Plan works

  • If your UCRP benefit exceeds the applicable 415 limit, membership in the 415(m) Plan is automatic. the Retirement Administration Service Center (RASC) will send you (or your survivor, contingent annuitant or alternate payee under a qualified domestic relations order) more detailed information.
  • The 415(m) Plan pays benefits that exceed the 415 limit whether your UCRP benefits are paid as monthly retirement income or as a lump sum cashout or include a CAP.
  • The 415m Plan applies only to UCRP benefits payable on and after Jan. 1, 2000.
  • If you choose to receive your retirement benefit as monthly income, changes to the 415 dollar limits and UCRP’s annual cost-of-living adjustment (COLA) can change the amount of your 415(m) Plan benefit over time. For example, if the 415 dollar limit increases, the amount that can be paid from UCRP will also increase. Similarly, a COLA increase to your UCRP benefit may mean that more of it must be paid under the 415(m) Plan.  If at any time your UCRP benefit no longer exceeds the current 415 limit, your benefits from the 415(m) Plan will stop.
  • If your UCRP benefits are paid as monthly retirement income, your 415(m) Plan benefit payments will be issued monthly as well, as a separate payment at the end of the month.
  • 415(m) Plan benefits applied to a CAP balance will be paid as a single sum.
  • If you die while receiving 415(m) Plan monthly benefits, any benefit payable to your survivor or contingent annuitant will be tested against the applicable 415 dollar limit. If the continuing benefit exceeds the limit, your survivor or contingent annuitant will receive a monthly 415(m) Plan payment as well.

Please note that The Regents have the right to discontinue the 415(m) Plan at any time. Also, the amount of a 415(m) Plan benefit could change as a result of changes to IRC Section 415. 

If you choose the lump sum cashout

To determine whether your lump sum cashout exceeds the 415 dollar limit, the value of the lump sum cashout is converted into a lifetime annuity. From there, it’s compared to the 415 dollar limit for your age and UCRP membership classification.

Because the lump sum cashout includes assumed COLA increases, it’s more likely that the lump sum cashout will exceed the limit so that part of your retirement benefit will need to be paid under the 415(m) Plan.

With a lump sum cashout:

  • If the amount of your 415(m) Plan benefit is more than $35,000, it will be paid as equal payments over 120 months. It will not be recalculated to reflect any future changes in the 415 dollar limit. If you’re receiving this form of 415(m) payments, be sure you’ve designated a beneficiary to receive your remaining payments in the event of your death.
  • If the amount of the 415(m) Plan benefit is $35,000 or less, it will be paid as a single sum. 

Taxes and Rollovers

415(m) Plan benefits are:

  • Taxed as ordinary income, reported to you on IRS Form W-2
  • Not subject to Social Security and Medicare (FICA) taxes
  • Not eligible for rollovers
  • Not considered wages subject to the Social Security earnings test (so they don’t affect your Social Security benefits)