About a dozen former Sonoma County government officials are earning annual pensions that exceed federal caps.
The benefits are paid in full anyway through an accounting maneuver each year by the county and its retirement system. That legal step and the tax rules that drive it are a wrinkle little known outside of pension plans and payroll offices.
Until recently, it was mostly private-sector employers with high-earning executives who were bumping up against the rules. But with more government retirees now leaving their jobs with six-digit pensions, the limits could command increasing attention in the public sector and among taxpayers.
"It's a liability and it's on the county's balance sheet," or it should be, said Ted Stephens, a financial adviser who serves on the board of the Mendocino County pension system. "The question is 'Is this going to be something that is another budget surprise for us?' "
Sonoma County retirees who hit the federal limits in 2011 represent the new era of higher pensions. They include five of the 10 highest-paid county retirees, including Bill Cogbill, the former sheriff, and Mike Chrystal, the former county administrator.
Both get annual pensions higher than the current Internal Revenue Service cap of $200,000 for defined benefit plans. Cogbill's pension is $239,311, and Chrystal's is $209,862.
Most others on the list hit the limits through a combination of their pension amounts and age. The overall cap is lowered for workers who leave before 62, two years above Sonoma County's full retirement age for workers outside of public safety jobs. Sheriff's deputies and other public safety workers qualify for full retirement at 50.
Those who exceed the cap also include former department heads and assistant managers throughout county government, from the probation department and the County Counsel's office to child support services and information systems.
Each year, taxpayers front the money that goes to those high earners after they've hit the federal caps in the form of checks out of the county general fund. Totals have ranged from $98,000 in 2009 to $161,000 in 2011. County officials said it could rise in the future.
The payments usually hit at the end of the calendar year. They come out of a general fund account used to pay employee benefits. The retirement system credits the payment back to the county in the following year through a discount on taxpayer contributions to the pension fund.
The same maneuver is authorized and widely used by other government employers to cover pension amounts affected by the federal rules, which are in section 415 of the Internal Revenue Code. It governs payments and contributions for tax-qualified pension plans. The caps have been in place since the 1970s and rise with inflation.
For decades, the limits have been a greater concern for private employers. Their workaround -- funneling contributions to so-called supplemental benefit plans that cover pension amounts over the cap -- is not tax deductible and is a significant revenue source for government. One prominent Bay Area tax attorney who helped craft the pension rules said that revenue collection from the private sector was a key reason for the implementation of the rules in the first place. Government employers are unaffected by the tax implications. The attorney asked not to be identified because his clients include public sector employers and retirement systems in the region.