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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. If your highest three years are not your final three years, we review your earnings record and capture the highest consecutive 36-month period under the DB Plan for your FAC.
If you worked part time (other than Plan A), intermittently, or were off the payroll during your FAC period, we will pick up earnings beyond three years.
If you are a conservation officer, your FAC is figured using the highest two years of earnings.
Compensation included in your FAC.
When you retire, you may receive final payouts from your employing agency. If your highest three consecutive years are indeed your final years of employment or final years of the DB Plan, some of that payout will count in your FAC and some will not.
The following payments ARE included in your FAC:
- Wages. All wages paid during the FAC period, including overtime, premium time, etc. Gross wages are used, before any deferred compensation or other income tax withholding. (For more information on how overtime is used in your FAC, view the overtime e-learning module and related handout.)
- Annual leave. If your highest consecutive 36 months of compensation includes your last day in the DB Plan, then your FAC formula will include up to 240 hours of accrued annual leave multiplied by the rate of pay as of your termination date. The hours will be paid at separation.
Note: If you switched from the DB Plan to the Defined Contribution (DC) Plan on or after March 31, 2012, (DB/DC Blend or DB30) then your FAC period must include your last day in the DB Plan to include up to 240 hours of accrued annual leave. For the purpose of the pension calculation, annual leave hours will be multiplied by the rate of pay as of the date you switched to the DC Plan. The hours will be paid at separation.
- Compensatory (comp) time. Included when paid at retirement IF your final three consecutive years are used as the FAC.
- Longevity pay. Included if paid during the FAC period.
- Performance pay. Included if paid during the FAC period.
- Voluntary Plan A hours. If your hours were reduced under Plan A during your FAC period, your FAC will include what might have been paid for those reduced hours. Your rate of pay immediately before your FAC period is multiplied by the number of reduced hours within the FAC period and added to what you actually earned during the FAC period.
- Banked leave time and furlough hours. Banked leave time and furlough hours that fall within your FAC period will be calculated at the rate of pay as of the date you earned the banked leave time. However, the payout amount is never used to calculate retirement benefits.
The following payments are NOT included in your FAC:
- Sick leave. Some employees are eligible to be paid one-half of their sick leave balance when they retire; however, sick leave is never used to calculate retirement benefits.
- Annual leave in excess of 240 hours.
- Clothing allowances.
- Flex plan payments.
- Travel compensation.
The following payments MAY or MAY NOT be included in your FAC:
- Grievance settlements. Determined on a case-by-case basis.
- Voluntary Plan B banked hours. If you still have a balance of Voluntary Plan B banked hours, you will be paid for those hours at your ending pay rate. If you banked hours before Sept. 30, 1981, and did not use them, your payout will be included in your FAC calculation. Hours banked after Sept. 30, 1981, and not used will be paid at your ending rate but will not be used in your FAC calculation unless those years will be used in the FAC period. If the latter is the case, your payout amount will not be used, but rather the hours banked will be added into your FAC at the rate of pay at which they were banked.
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 IRS each year, may not be included in your pension calculation. In 2022 the limit is $305,000.
The information on this page regarding annual and banked leave time is regarding calculation of your FAC only and not about payoff. For information on the payoff of any leave time at retirement, refer to the Michigan Civil Service Commission guidelines.