Earnings Test
Concept
In accordance with the requirements of Iowa Code Chapter 411, individuals who are receiving a benefit based upon a disability are subject to the following requirements on an annual basis, as provided by Iowa Code Chapter 411:
MFPRSI must reduce the member's retirement allowance to an amount which together with the amount earned by the member shall equal one and one-half times the amount of the current earnable compensation of an active member at the same position on the salary scale within the member's rank as the member held at retirement.
Should a disability beneficiary under age 55 be employed in a public safety occupation, the disability beneficiary's retirement allowance will cease. For purposes of this requirement, a "public safety occupation" is defined as a peace officer, which for the purposes of the Chapter 411 retirement system is a police officer or firefighter who was not restored to active service.
Description
Members on disability retirement are required to annually submit a complete copy of his/her Federal and/or State of Iowa income tax report. A member who is 55 or older is exempt from this requirement beginning for the year in which they turn 55. As required by statute, MFPRSI reviews the submitted tax reports and may reduce the member's monthly disability allowance if the member's earnings exceed the annual limit.
An example of how the formula works for determining the annual limit is as follows:
Four years ago Sean retired at age 44 from the local police department with a disability retirement benefit. A currently active police officer on the same pay scale and rank as Sean was at his retirement earned $35,000 during the most recent tax year. Multiplying 1.5 by $35,000 creates Sean’s earnings test limit of $52,500.
Additionally, Sean’s annual retirement benefit is $25,000. Subtracting Sean’s retirement benefit of $25,000 from his maximum earnings test limit of $52,500 creates his annual earnings limit of $27,500. In addition to his pension Sean works part-time and his current year federal tax return document showed he earned $28,000, putting him above his annual earnings limit. Therefore, Sean owes MFPRSI $500 which is the difference of his annual earnings limit, $27,500, less his actual earnings, $28,000. This amount will be recovered from Sean through either a reduction or suspension of future benefits. Once the $500 is recovered, Sean will resume receiving his full disability retirement benefit.
Have questions? Check out the Earnings Test Frequently Asked Questions.