 IPERS Member Handbook
CONTRIBUTIONS HELP FUND YOUR BENEFITS
Both you and your employer contribute a percentage of your wages to IPERS to help fund your retirement benefits. Your employer deducts your contributions from your paycheck and sends both your share and your employer’s share to IPERS. Contributions from all IPERS members are pooled and invested. The contributions and investment income are held in a trust fund for the exclusive purpose of paying benefits to IPERS members and their beneficiaries and the related administrative costs.
Because IPERS is a defined benefit plan that pays a lifetime pension based on a formula, your contributions reflect only a small part of the potential value of your IPERS benefits. The value of your benefits grows as your years of public employment increase.
Your contributions plus interest are always yours. If you leave public employment before you retire, you may keep your money at IPERS, roll it over to another qualified retirement plan that meets IRS requirements, or take a refund.
A. Contribution Rates
Your position or job classification determines your membership type and the contribution rate applied to your covered wages.
Contributions for regular members are set in law by the Iowa Legislature. Employees pay about 40 percent of the total contribution and employers pay about 60 percent.
 The law authorizes IPERS to adjust the rates for Special Service members based on recommendations from IPERS’ actuary. Sheriffs and deputy sheriffs split the contributions equally with their employers, each paying 50 percent. Protection occupation members pay about 40 percent of the total contribution and their employers pay about 60 percent.
Employee Category
7/1/06–6/30/07 |
Employee
Share |
Employer
Share |
| Regular IPERS Members |
3.70% |
5.75% |
| Special Service Members |
|
|
 Sheriffs and Deputies |
8.37% |
8.37% |
| Protection Occupations |
6.08% |
9.12% |
Beginning July 1, 2007, the contribution rates for regular members will increase by one-half percentage point each year for four years. The total increase is two percentage points. The following chart shows the contribution rate increases.
| |
Regular Members |
| |
Until
July 1,
2007 |
July 1,
2007 |
July 1,
2008 |
July 1,
2009 |
July 1,
2010 |
Combined
Rate |
9.45% |
9.95% |
10.45% |
10.95% |
11.45% |
| Employer |
5.75% |
6.05% |
6.35% |
6.65% |
6.95% |
| Employee |
3.70% |
3.90% |
4.10% |
4.30% |
4.50% |
B. Employer Pick-Up (Pretax)
Federal law provides for deferring federal income tax on the amount of employee contributions made to a government-sponsored pension plan. It is often referred to as employer pick-up (or pretax). Beginning January 1, 1995, members began making contributions to IPERS on a pretax basis for federal income tax purposes; beginning January 1, 1999, members also began contributing to IPERS on a pretax basis for Iowa state income tax purposes. Pretax contributions effectively reduce both federal and state taxable wages for the year in which they are made.
The following chart illustrates how pretax contributions work. For all purposes other than federal and state income taxes (e.g., Federal Insurance Contributions Act [FICA] and IPERS contributions), employees’ gross wages are not affected by this “pretax” treatment. IPERS will continue to credit the amount deducted by the employer to the employees’ accounts.
EXAMPLE: A member earning $30,000 annually who contributes at the 3.70% rate.
(1999 and later)
| |
(1) |
IPERS-covered wages |
$30,000 |
| |
(2) |
IPERS contributions |
|
|
|
(a) Employee* = $30,000 x 3.7%
(b) Employer = $30,000 x 5.75% |
$ 1,110
$ 1,725 |
| |
(3) |
Federal taxable wage = (1) – (2a) |
$28,890 |
| |
(4) |
State taxable wage = (1) – (2a) |
$28,890 |
| |
(5) |
FICA-covered wage = (1) |
$30,000 |
*Employee contributions should be reported as zero for income tax purposes. They will remain $1,110 for all other purposes.
C. Wages
1. IPERS-Covered Wages
IPERS-covered wages are the portion of your compensation from which contributions to IPERS are withheld. Employers do not report to IPERS wages over this limit and there are no contributions for wages over this limit. The maximum annual covered wages set by the Iowa Legislature for each year from 1953 through 1996 are as follows.
| Maximum Annual Covered Wages
|
7/4/1953–12/31/1963
1/1/1964–12/31/1967
1/1/1968–12/31/1970
1/1/1971–12/31/1972
1/1/1973–12/31/1975
1/1/1976–12/31/1983
1/1/1984–12/31/1985
1/1/1986–12/31/1986
1/1/1987–12/31/1987 |
$ 4,000
4,800
7,000
7,800
10,800
20,000
21,000
22,000
23,000 |
1/1/1988–12/31/1988
1/1/1989–12/31/1989
1/1/1990–12/31/1990
1/1/1991–12/31/1991
1/1/1992–12/31/1992
1/1/1993–12/31/1993
1/1/1994–12/31/1994
1/1/1995–12/31/1995
1/1/1996–12/31/1996*
|
$24,000
26,000
28,000
31,000
34,000
35,000
38,000
41,000
44,000 |
*Effective January 1, 1997, the covered wage limit was set as the maximum amount permitted by federal law. Effective January 1, 2007, that amount is $225,000.
Since January 1, 1997, the IPERS-covered wage ceiling is set at the maximum amount permitted by federal law under IRC Section 401(a)(17). For 2007, the maximum covered wage is $225,000. This amount may be adjusted in the coming years based on maximum wage limits set by the Internal Revenue Service.
For IPERS’ purposes, the portion of your compensation included in your covered wages may vary, based on the employer and employee’s benefits, job classification, and collective bargaining contract, if applicable.
For most IPERS members, covered wages include:
- Regular pay.
- Vacation pay, unless paid in a lump sum.
- Sick pay, unless paid in a lump sum.
- Overtime.
- Back pay, unless paid as damages to avoid litigation.
- Amounts deducted from your pay at your discretion for tax-sheltered annuities, dependent care, and cafeteria plans.
For elected officials (other than members of the General Assembly), covered wages are defined as the salary received by an elected official, whether paid as a salary or per diem, exclusive of expense and travel allowances.
For members of the General Assembly, covered wages are defined as:
- The total compensation received, whether paid in the form of per diem or annual salary, exclusive of expense and travel allowances paid to the member during a session, except as otherwise noted in this section.
- Per diem payments paid during interim periods between sessions.
- Daily allowances for contra expenses of the office during a session (for members from Polk County, this amount may not exceed the maximum established by law).
2. Exclusions From IPERS-Covered Wages
For IPERS’ purposes, covered wages do not include:
- Special lump-sum payments made as a payoff for accrued sick leave or accrued vacation, or another similar leave program.
- Payments or special bonuses made as an incentive for early retirement.
- Payments made upon dismissal or severance.
- Recruitment bonuses.
- Amounts paid pursuant to special arrangements under which an employer increases a member’s compensation by the employer’s share of health care costs and has the member reimburse the employer or a third-party provider for such health care costs.
- Amounts paid pursuant to special arrangements between an employer and member whereby compensation in excess of the covered wage ceiling for a particular year is deferred to one or more subsequent years.
- Deferrals to and distributions from nonqualified deferred compensation plans.
- Employer contributions to a plan, program, or arrangement whereby the amounts contributed are not included in the employee’s federal taxable income (excluding member contributions to an IRC Section 403[b] tax-sheltered annuity or a Section 457[b] deferred compensation program).
- Ad hoc payments made in lieu of any employer-paid group insurance coverage or payments made for the difference between the costs of single and family insurance coverage where the difference is not uniformly available to all employees.
- The amount of life insurance paid by employers for policies over $50,000.
3. Other Forms of Compensation
The table below summarizes the many forms of wages and compensation that may or may not be included in IPERS-covered wages.
| Compensation Type |
IPERS Coverage |
| Allowance (e.g., car or clothing) |
Not covered if not reportable for federal income tax purposes. Also, not covered if reportable for federal income tax purposes but could have qualified with proper documentation, as deductible reimbursement for business expenses.
Covered otherwise. |
| Back pay |
If covered, the employer reports back pay in the quarters in which it should have been paid; not covered if it represents damages paid to avoid litigation. |
| Banked holiday pay |
Treated as either vacation pay or compensatory pay. |
| Bonus |
Covered unless paid as an early retirement incentive or recruitment bonus. |
| Cafeteria plan contributions |
Employee share: Covered if deducted from pay at employee’s discretion.
Employer share: Generally covered if the contribution can be received in cash uniformly at employee’s election, even if the member does not choose cash. Many exceptions apply. See Iowa Code Section 97B.1A(26) and IAC 495-6.5(97B) and your employer for more details. IPERS recommends to employers that they submit plan documentation to IPERS in writing so IPERS can determine plan coverage. |
| Compensatory pay |
Covered. However, if paid as lump sum, subject to a maximum of 240 hours per member per year. |
| Disability pay |
Covered if paid from the general assets of the employer. Not covered if paid by insurance or another third party. |
| Early retirement incentive |
Not covered. |
| Hourly pay |
Covered. |
| Legal settlements |
Covered if amount is equal to wages that would have been paid but for an employment dispute. Not covered if payment does not reflect actual wages that would have been paid. |
| Longevity pay |
Covered. |
| Overtime |
Covered. |
| Per diem |
Not covered unless paid to an elected official in certain covered positions. |
| Reimbursement of business expenses |
Not covered if paid for documented business expenses. |
| Salary |
Covered. |
| Severance pay |
Not covered. Any money paid as part of a severance package is not covered. |
| Sick pay |
Covered when used to continue normal pay during a regular pay period. Not covered when paid out as a lump sum or in a series of installments for the lump sum. |
| Tax-sheltered annuity, 457 tax-deferred plan, and flexible spending account plan contributions |
Covered if contribution can currently be received in cash uniformly at employee’s election. |
| Transportation expenses |
Not covered if intended as reimbursement of business expenses. |
| Vacation pay |
Covered when used to continue normal pay during a regular pay period. Not covered when paid out as a lump sum or in a series of installments for the lump sum during or after termination. |
| Wage equivalent |
Not covered if not reportable for federal income tax purposes. Also not covered if reportable for federal income tax purposes but provided primarily for the benefit of the employer.
Covered otherwise. |
| Workers’ compensation |
Amounts paid by the employer to supplement the workers’ compensation are covered. Amounts from other sources are not covered. |
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