Effective August 1, 2024, the CBBC factor is set at 6.25. The Contribution Based Benefit Cap (CBBC) is a tool SERS began using on August 1, 2024, to identify and prevent pension spiking, also known as benefit inflation.
While benefit inflation is uncommon at SERS, when it does occur the pension fund must subsidize those benefits, creating an imbalance for the majority of members whose career salary and contributions followed a normal trajectory. The CBBC ensures that a member’s career contributions support their pension benefit.
The CBBC implementation does NOT affect anyone with a retirement effective date before August 1, 2024, and will NOT be applied to a disability conversion retirement allowance capped at 45% of the member’s Final Average Salary.
In most cases, the traditional pension formula will determine a member’s benefit. Only a small number of retirements each year are expected to trigger a CBBC reduction. The CBBC calculation is separate from the traditional pension formula and is focused solely on a member’s career contribution history. It does NOT change or affect the Final Average Salary (FAS) calculation.
To determine if the CBBC will impact you, create a service retirement estimate through Account Login. If your benefit is capped by the CBBC, you will see a message indicating that the CBBC applies on the final estimate screen.
Benefit inflation can occur when a member’s highest three years of salary are significantly higher than the rest of their career earnings, resulting in a traditional pension calculation significantly higher than what is supported by career contributions. A member’s CBBC factor may be influenced by the timing of bonuses, above-market salary increases, part-time work, and/or career changes.
If you continue contributing to SERS, the increase to your member contributions could lessen or remove the CBBC. SERS cannot project future member contributions, so estimates based on retirement dates further in the future are more likely to indicate a benefit cap.
The examples below illustrate how different career patterns may influence a member’s personal CBBC factor. While several of these scenarios result in elevated personal CBBC factors, only egregious salary increases exceed a CBBC factor of 6.25.
Three members with different salaries all received consistent annual salary increases of 3% over 25 to 30 years. Members with normal salary increases adequately contribute toward their formula benefit. Members should consider their age at retirement, as younger retirement ages can lead to incremental increases in their CBBC factor.
Peter’s 30-year career includes periods of steady increases, no increases, various bonuses, and above-market salary increases near the end. Paul has a 38-year career with steady increases. Mary has a shorter career with steady increases. Although Peter’s late-career raises increased his CBBC factor, his benefit would not be capped at a factor of 6.25.
Susie worked part time while her children were in school, then switched to full time. Larry worked full time throughout his career with normal salary increases. While Susie’s transition to full-time work during her final 10 years increased her CBBC factor, her benefit would not be capped at a factor of 6.25.
Sally began her career at age 35; Harry started at age 22. Both worked 31 years with similar salaries. Harry retired at age 52 under grandfathered eligibility rules. Because Harry retired younger, his contributions would be paid over a longer period, resulting in a higher personal CBBC factor — however, his benefit would not be capped at a factor of 6.25.
Max earned in the low to mid-$20,000 range for his first 27 years, followed by a significant increase to a quarter-million dollars during his final three years. This results in a formula benefit that exceeds his accumulated contributions in one year. The CBBC ensures Max’s benefit is more consistent with his earnings history. This is the scenario that triggers a CBBC reduction.
You can view your most up-to-date accumulated contributions by logging in to Account Login. From the Member Account screen, your accumulated contributions appear under Total Account Balance.
The CBBC determination followed years of thorough discussion and careful analysis by SERS’ Board of Trustees. Materials that assisted the Board in its decision are available in the Downloads section below, along with additional resources on the SERS Sustainability page.
