Retroactive payments are lump sum payments you receive from your employer. These payments can be from new union contracts, arbitration awards or legal settlements that took place while you were on your employer’s payroll.
Your final average salary (FAS) is a major factor in your pension benefit calculation. Your FAS is the average of your three (five for Tier 6 members) highest consecutive years of earnings. For most people, their highest years of earnings come at the end of their careers.
If you receive a retroactive payment from your employer, it could affect your final average salary. Let’s look at how.
How Retroactive Payments Can Affect Your Benefit
When we calculate your FAS at retirement, retroactive payments are applied to the pay periods when they were earned, not when they were paid. In general, retroactive payments can increase your FAS as long as the time period in which you earned that money is part of the time period your FAS is based on.
Your employer should let us know if you receive a retroactive payment before or after you retire. If you are a State employee who receives a retroactive payment after you retire, we will recalculate your pension automatically; you do not need to notify us. If you receive a retroactive payment from a non-State employer after your pension calculation is finalized, send a letter to our Recalculation Unit in the Benefit Calculations & Disbursement Services Bureau. Please include a copy of your check stub and/or any correspondence you received from your employer. You may also email and upload this information to the Retirement System through our secure contact form.
For more information about FAS, read our Final Average Salary blog post. You can also find out specific information about your FAS by reading your retirement plan booklet, available on our Publications page.
When Tier 6 NYSLRS members think about retirement, their final average salary (FAS) is a significant consideration. In the Employees’ Retirement System (ERS), it’s a five-year FAS, which means the pension is based on the average earnings from the highest five consecutive years. However, the law limits the earnings that are included in the FAS calculation.
First, a year of earnings in the FAS period can’t exceed the average of the previous four year’s earnings by more than 10 percent. Anything beyond that will not be included in the pension calculation.
Additionally, several types of payments will not be part of the FAS calculation for ERS Tier 6 members:
- Lump-sum vacation pay,
- Wages from more than two employers,
- Payment for unused sick leave,
- Payments for working during a vacation,
- Any payments that cause your annual salary to exceed that of the Governor (currently $179,000),
- Termination pay,
- Payments made in anticipation of retirement,
- Lump-sum payments for deferred compensation and
- Any payments made for time not worked.
Generally speaking, here’s what an ERS Tier 6 FAS will include: regular salary, holiday pay, overtime pay (regular and noncompensatory) earned in the FAS period and up to one longevity payment per year, if earned in the FAS period.
While overtime pay generally is part of an ERS Tier 6 FAS, the amount that can be included is limited. The limit is adjusted for inflation each year based on the change in the Consumer Price Index over the one-year period ending September 30 of the previous year. Under a new law, beginning January 1, 2018, the Tier 6 limit will be updated on a calendar year basis instead of on a fiscal year basis.
The 2018 calendar year overtime limit for Tier 6 members is $16,406.
For more information about the Tier 6 FAS, find your retirement plan booklet on our Publications page, or check out our Final Average Salary and Overtime Limits for Tier 6 pages.