A small group of former state employees continue to receive benefits exceeding the limit set by federal tax codes, while the state works with them and the IRS to find a resolution.
When Comptroller Kevin Lembo first came into office in 2010, he learned that between 1992 and 2010 certain retirees received an annual pension benefit in excess of the federal limit established by the Internal Revenue code, according to his office.
This created a problem because the State Employees Retirement System, or SERS, plan is treated as a qualified benefits plan for tax purposes, and retaining that qualification is a requirement for the plan.
Staying within the federal cap is one of the requirements, Lembo’s office says.
State statutes grant the state Employees Retirement Comm-ission the authority to administer the provisions of SERS, the Municipal Employees Retirement System, and all other retirement and pension plans except the Teachers Retirement System.
Consequences for plans not in compliance could include the plan trust becoming taxable, retirees being immediately taxed for their contributions, and lawsuits.
Once Lembo realized the discrepancy, he ensured the federal cap was imposed for all new pensions, and began a review to determine the scope of the issue, according to his spokeswoman Tara Downes.
He also reported the problem to the chairman of the Connecticut State Employees Retirement Commission, urging the commission to seek expert tax and legal advice in order to protect taxpayers, current state employees, and retirees already receiving pensions exceeding the legal federal limit, Downes said.
She added that there are 33 people who continue to receive pensions exceeding the federal limit, all of whom began receiving retirement funds prior to January 2011.
While the pension cap for 2017 is $215,000, there is not a standard cap for each retiree.
The amount is adjusted based on a variety of factors, including the retiree’s age at the time benefits begin, the nature of the retiree’s pre-retirement employment and, in some cases, the length of the member’s participation in SERS, Lembo’s office said.
The IRS also has the authority to adjust the cap annually to reflect the cost of living.
Some of the excess pensions date to 1992, and range from $74,000 to $308,000, Downes said.
In 2012, the commission hired the law firm Ice Miller LLP for advice and to work with the comptroller’s Retirement Services Division to compile records and documentation.
Ice Miller terminated its representation of the commission in December 2013, at which time the commission hired Robinson & Cole LLP, with which the commission continues to consult.
A negotiated resolution with the IRS and plan of correction also is pending.
Peter Adomeit, the chairman of the commission, could not be reached for comment regarding the status of the resolution, or the potential implications to taxpayers and retirees.
In the meantime, the comptroller’s office continues to review each new retirement plan to ensure they are within the federal limit and for the first time in decades, benefits are reviewed annually to ensure compliance, Downes said.
According to Transparency.CT.gov, the state made pension payments of more than $1.7 billion to 50,563 people in 2015.
The numbers represent payments to SERS retirees as well as the Judges, Family Support Magistrates and Compensation Commissioners Retirement System, the Probate Judges & Employees Retirement System, the State’s Attorney Retirement System, and the Public Defender Retirement System.
