The $110 billion New York State Common Retirement Fund, Albany, has gotten a green light from the IRS to set up an "excess plan."
As a result, the fund has created a separate trust account from which it will begin paying excess benefits to eligible retirees as of June 30. "The money has to be segregated to avoid unfavorable tax consequences to both the pension fund and the person receiving the benefits," a fund spokesman said.
Section 415 of the Internal Revenue Code prohibits a public plan participant from receiving annual benefits that are higher than $160,000.
But under the Small Business Protection Act, passed in 1996, employers can pay higher benefits if they establish excess benefit plans.
In New York's case, funding for the excess benefits will come from the employers and flow immediately into the separate trust. It won't affect the pension fund.
New York state will pay a one-time lump sum of $1.05 million for a retroactive payment to 152 employees.
It will pay another 76 employees a total of $18,709 a month in excess payments on an ongoing basis.
While a number of public pension funds have set up excess plans, New York State is believed to be the first to get a ruling on it from the IRS.
"We asked for (the ruling) so we'd be sure that we were doing it right," the spokesman for the fund said.
