What you earn as “regular compensation” is important both for us and for you:
- For you, because it is the amount of your earnings upon which you pay retirement contributions.
- For both you and us, because only those payments that meet the definition of “regular compensation” may be used in the determination of your final salary average, which is a factor in the calculation of your retirement benefit.
It is in your best interest to understand what earnings are included and excluded as regular compensation so that, when it is time for you to retire, you don’t have any misunderstanding or false expectations as to what will be included in your final salary average.
“Regular compensation” is a complex legal term whose precise definition is often the subject of court decisions. Below are some of the most commonly asked-about payments as far as what is generally included in, or excluded from, regular compensation.
What is generally INCLUDED as regular compensation:
- Your annual base salary, which is usually set forth in your collective bargaining agreement or administrator’s contract
- Salary payable for services rendered in connection with a school lunch program
- Salary payable for services in connection with a program for physical education instruction and athletic contests such as intramural sports
- Athletic coaching
- Annual stipends for additional services set forth in your collective bargaining agreement (e.g., yearbook advisor, class advisor, department head)
- Cost-of-living adjustments that become part of base pay
- Payments for length of service (“longevity”)
- Educational step increases according to salary schedule set forth in collective bargaining agreement, which become part of base pay
What is generally EXCLUDED as regular compensation:
- Retirement incentives
- Temporary salary augmentations (i.e., ”ELBO” payments)
- Amounts paid for unused sick leave
- Payment for unused vacation
- Special projects
- Summer school
- Reimbursement for travel or other expenses
- Travel or housing allowances
- Amounts paid on an hourly basis for additional services
- Amounts paid in addition to salary for professional development or education assistance (e.g., recertification workshops) that do not become part of your annual base salary
- Any payment made as a result of the employer’s knowledge of your retirement
- Workers’ compensation wages
- Effective July 1, 2012, all fringe benefits, including employer paid individual life and disability insurance premiums, annuities, and housing allowances. [Note: fringe benefits that were in the member’s contract in effect on May 1, 2009 may be grandfathered as regular compensation through the expiration of the term of that contract, or June 30, 2012, whichever occurs first.]
Note: Employees with membership dates after 12/31/1995 are subject to pensionable earnings limits
There are federal and state limits on the amount of pensionable earnings (“regular compensation”) that can be used in computing benefits for active members of public retirement systems with effective membership dates after 12/31/1995. Specifically, for members with effective membership dates:
- After 12/31/1995, the pensionable earnings limit for calendar year 2021 is $290,000* (pursuant to Internal Revenue Code § 401(a)(17); see 2021 PERAC Memo 2).
- After 1/1/2011, the pensionable earnings limit for calendar year 2021 is $185,600* (pursuant to Section 23 of Chapter 131 of the Acts of 2010; see 2021 PERAC Memo 3). For the purposes of imposing a pension “cap,” the maximum amount of regular compensation that may be used in the determination of the final average salary was set at 64% of the annual limit pursuant to the Internal Revenue Code, 26 U.S.C. 401(a)(17). In 2021, the 401(a)(17) limit is $290,000. Accordingly, the maximum amount of regular compensation for a member whose most recent date of membership is after 1/1/2011 is $185,600 in 2021 (64% of $290,000).
Your pension from the Massachusetts Teachers’ Retirement System is generally considered a marital asset and, whether you are actively in service or receiving a retirement allowance, it is subject to valuation and division in a divorce. If your former spouse is named an “alternate payee” by the court, he or she may be entitled to receive a share of your retirement benefits at the time of your retirement pursuant to the terms of a domestic relations order (DRO).
What is a domestic relations order?
A domestic relations order—commonly known as a DRO—is a judgment, decree or order (including approval of a property settlement agreement) that sets out how a person’s retirement benefits are to be allocated between parties who are in the process of divorcing or who are already divorced.
Do I need to have a domestic relations order as part of my divorce?
If your retirement allowance (or prospective retirement allowance) is to be divided between you and your ex-spouse, you need a Domestic Relations Order. If there is no Domestic Relations Order, then at the time of your retirement we will not divide the retirement allowance.
The MTRS has developed a model domestic relations order to assist members, their spouses, former spouses and attorneys in drafting an order that meets all of the statutory requirements. To review this sample document, or obtain more information on divorce and how it could affect your MTRS benefits, please refer to our booklet, What You Should Know as a Party to a Domestic Relations Order.
What gives my ex-spouse the right to my retirement allowance? It comes from my work.
Your retirement allowance is considered a marital asset, just like your house, car, investments, or your ex-spouse’s retirement allowance can be. The divorce court can divide the retirement allowance or leave it alone, as it sees fit. Most often, the divorce court endorses a property settlement agreed to by the parties. You need to obtain legal counsel to help you reach a fair property settlement.
I’m still working. Can my ex-spouse take part of my pension now?
No, unless you leave Massachusetts public service and take a refund. The Domestic Relations Order will establish a formula for calculating how much of your future retirement allowance will be divided. Your ex-spouse can only get a share of your retirement allowance or refund when you apply for it and obtain your share.
Accidental death benefits
If you die as the result of an accident while you are an active member, your survivor may be eligible to receive an accidental death benefit, which is greater than the regular survivor benefit amount.
When is my survivor eligible to receive an accidental death benefit?
Your survivor is eligible to receive an accidental death benefit in two situations:
- if, while you are an active member, you die as the result of a work-related accident or injury, or
- if you retired under accidental disability, and you die as a result of the injury or condition that precipitated your retirement.
What will my survivor receive as an accidental death benefit allowance?
If you are an active member and you are survived by a spouse, dependent child or dependent parent, your survivor will receive a one-time lump-sum payment of the balance in your annuity savings account, plus a lifetime survivor allowance equal to 72% of your current annual compensation. Your surviving spouse or guardian will also receive an additional $312 per year for each child under age 18, or under 22 if a full-time student. Children who are physically or mentally incapacitated from earning will receive a lifetime benefit.
If you retired under an accidental disability and you later die as the result of the injury or condition for which you received accidental disability benefits, your surviving spouse may apply for an accidental death benefit. If granted by the Board, your spouse’s lifetime benefit would be equal to 72% of what your yearly compensation was when you were last employed. In addition, your spouse would receive a one-time, lump-sum payment of the balance in your annuity savings account as of the time that the Board approved the benefit allowance. Your surviving spouse would also receive an additional $312 per year for each child under age 18, or under 22 if a full-time student. Children who are physically or mentally incapacitated from earning will receive a lifetime benefit.
If you retired under an accidental disability prior to November 7, 1996, and you die as the result of a cause unrelated to the condition for which you received accidental disability benefits, your surviving spouse could apply to receive an accidental death benefit of $12,000 per year ($1,000 per month).
Does the Board automatically award an accidental death allowance, or does my survivor have to apply for benefits?
Your survivor would need to apply for accidental death benefits, and the Board would have to review and approve his or her application. Your survivor should contact our office for detailed information.
If an accident or illness leaves you unable to make decisions, a trusted designee may transact your affairs
A power of attorney (POA) is a written document in which you (the “principal”) authorize a trusted individual whom you select (your “attorney-in-fact” or “agent”) to act on your behalf. There are several types of POA:
- Limited POA: This gives someone the authority to act on your behalf in specific situations or for limited time periods.
- General POA: This grants someone the authority to conduct all affairs on your behalf.
- Durable POA: This authorization remains effective even if you should become disabled or incapacitated, and can provide one of the most important benefits of a POA. If the POA is not durable, it will automatically be revoked when you become disabled—and if you become disabled or incapacitated, that is just when you need the assurance that another can act on your behalf.
- “Springing” or “springing durable” POA: This type of appointment only “springs” into being or becomes effective when needed, at some future date or upon some future occurrence, usually when you become incapacitated.
The laws pertaining to POAs may differ in different states. In Massachusetts, as provided under the Massachusetts Uniform Probate Code, a durable POA:
- Can be general or specific. In a specific durable POA, the agent is authorized to act only in certain capacities, which the POA document must describe in detail. A general durable POA grants broader powers to the agent, allowing him or her to act in a variety of matters, from financial decisions to health care, or to complete your biennnial MTRS Benefit Verification Form.
- Can take effect immediately on signing by the principal (known as a “present” power of attorney) or at a later time. A document that becomes effective only when needed, for example, if and when the principal suffers an incapacitating illness or injury, is known as a “springing durable” POA.
- Should be signed in the presence of a Notary Public and must contain the phrase “This power of attorney shall not be affected by subsequent disability or incapacity of the principal, or lapse of time,” or similar language indicating that in the event of disability, the authority granted in the document remains valid. A durable POA may contain an expiration date, beyond which it lapses. It also may be revoked as long as the principal is not incapacitated. If the principal is incapacitated, a legal guardian would have the power to revoke the document. The POA is at all times answerable to a court-appointed legal guardian or fiduciary.
If you do not have a valid, durable power of attorney in place and you become incapacitated, the Massachusetts Probate Court will have legal authority over your affairs. The court will appoint a guardian to make decisions, sign documents and handle your health, business and family decisions, and take charge of your property and assets. A court-appointed guardianship means additional expense and legal complications for you and your family, as well as uncertainty over the outcome of any probate matters.
When choosing someone as your attorney-in-fact, however, be sure to select someone who is responsible and trustworthy, and consult your attorney regarding the different ways you can limit your POA document to protect yourself. To revoke your POA, notify your attorney-in-fact in writing, and ask them to return any copies of your POA document to you. You should also notify any others that may have received the document, including the MTRS, in writing, that you have revoked your POA.
As the MTRS cannot provide you with legal advice, please consult a lawyer for more information.