As we prepare for the end of the year and the start of the next, I would like to take this time and inform all of you who are in Tier 2 and Tier 3 of the PFRS that the Social Security maximum wage has increased from $142,800 to $147,000.
If any PFRS member in Tier 2 or Tier 3 has a pensionable salary that is over the amount of $147,000, you will be, or at least you should be, enrolled into the Defined Contribution Retirement Plan, or DCRP. Once Tier 2 or Tier 3 members go over the $147,000, the excess salary will be contributed into the DCRP. For example, a Tier 3 member who was recently promoted and whose salary is $157,000 can enroll in the DCRP and then would contribute the excess salary, which in this case would be $10,000, into the DCRP. Enrollment in the DCRP is voluntary; however, I suggest that you enroll, because in addition to your 5.5 percent contribution rate, your employer will contribute 3 percent, based on the excess salary amount, into your DCRP account.
Employees who participate in the DCRP will receive service credit in their Police and Fire Retirement System account and will be eligible to retire under the rules of the retirement system. The final salary or final compensation at retirement will be limited to the maximum compensation amounts in effect when the salary was earned. Employees who participate in the DCRP because their salary exceeds the maximum Social Security wage limit will receive additional income above their pension amount, which is based on the amount invested in the DCRP. If you are enrolled in the DCRP, contact the Prudential Financial representative who administers your DCRP to ensure you are in the right investment portfolio that is optimal for you.
For those members who have a 457(b) plan, also known as a governmental deferred compensation plan, that is administered by a company like Axa/Equitable or Lincoln Financial, the contribution limits have been increased for 2022 as well. For 2022, the contribution limit for 457(b) plans is now $20,500 if you are under 50 years old and $27,000 if you are over 50. If you are over 50, you are allowed to contribute another $6,500 over the $20,500, which totals the $27,000 ($20,500+ $6,500 = $27,000).
Make sure you contact the financial planner who administers your 457(b) plan for your employer to see if you are on the right track for retirement savings.