Your Final Average Compensation

Your final average compensation (FAC) period will end on your last date of employment in the Defined Benefit (DB) Plan if this period represents your highest consecutive earnings. We will count earnings from your last day of employment in the DB Plan back three or five years. If your highest three or five years are not your final years, we review your earnings record and capture the highest three- or five-year period under the DB Plan for your FAC. During this review, we will verify your final wages with your employer. If one year's wages are significantly higher than the previous year, the Michigan Office of Retirement Services will make sure the compensation is in accordance with the normal salary schedule for your job classification.

It doesn't matter if you retire during or at the end of the school year, or if you receive some wages during the summer months after you retire. We will capture all you earned during your FAC period. We will also review any contract settlement that occurs after you retire.

Types of Compensation Included in Your FAC

The types of pay used to calculate your FAC can include:

• Wages. Gross wages earned while performing the duties of your position, including compensation for extra work assignments such as coaching. 
• Longevity pay.
• Vacation or holiday pay while absent from work.
• Sick leave pay (including weekly workers' compensation) while absent from work.
• Overtime pay.   
• Merit pay for achieving specific performance objectives.
   

The following payments are not included in your FAC:

• Unused sick or vacation time.
• Bonus payments. 
• Retirement incentive payments. 
• Health and life insurance premiums.
• Long-term disability payments.
• Fringe benefits.
• In-kind compensation.
• Sabbatical leave stipends.
• Service credit purchased by your employer on your behalf.
• Termination pay.
• Expense payments.
• Payments in lieu of health insurance.
• Payments for the specific purpose of increasing your FAC.
• Reimbursement for MIP or FICA contributions.
   

Note: Section 401(a)(17) of the IRS code can affect the FAC, and therefore the pension payments, of certain highly compensated individuals who were hired after Oct. 1, 1996. The rule places a limit on the maximum compensation allowed for retirement benefit computations. Any wages you earn above this limit, which is set by the IRS each year, may not be included in your pension calculation. In 2022 the limit is $305,000.