What earnings qualify as “regular compensation” is important for members, employers and the MTRS:
- “Regular compensation” is the amount of a member’s earnings upon which he or she pays retirement contributions.
- Only those payments that meet the definition of “regular compensation” may be used in the determination of a member’s final salary average, which is a factor in the calculation of his or her retirement benefit.
It is in everyone’s best interest to understand what earnings are included and excluded as regular compensation so that, when it is time for a member to retire, there are no misunderstandings or false expectations as to what will be included in the 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:
- Annual base salary, which is usually set forth in the 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 the 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 annual base pay
- Any payment made as a result of the employer’s knowledge of the member’s 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 2019 is $280,000* (pursuant to Internal Revenue Code § 401(a)(17); see 2019 PERAC Memo 3).
- After 1/1/2011, the pensionable earnings limit for calendar year 2019 is $179,200* (pursuant to Section 23 of Chapter 131 of the Acts of 2010; see 2019 PERAC Memo 4). 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 2019, the 401(a)(17) limit is $280,000. Accordingly, the maximum amount of regular compensation for a member whose most recent date of membership is after 1/1/2011 is $179,200 in 2019 (64% of $280,000).*The limit applies only to pensionable earnings, and is based on calendar year compensation, not school year compensation or school year contractual rate. Additionally, unlike the 2% deduction exception, the eligible earnings amount is not apportioned throughout the year; employers are to deduct contributions on all eligible earnings as they are paid, up to the limit.
To ensure that deductions are not submitted on pensionable earnings above the annual limit, each year after all of the prior year’s deduction reports are fully processed, we review the regular compensation amounts reported by employers for the prior year. If any members are found to have exceeded the limit for the calendar year, we will reach out to their employer to make arrangements to return the excess contributions to the member.