Reporting units can pay workers in many ways. However, not all pay counts toward a worker’s retirement benefits. Workers get different benefits when they retire depending on their plan:
The Michigan Office of Retirement Services (ORS) calculates a worker’s pension using their Final Average Compensation (FAC). The FAC is the average amount of money a worker earns over a set period of time. ORS uses the pay reported by the employer to calculate this amount, based on the Retirement Act.
Money in a retirement savings account changes over time:
Only state law and ORS decide which pay counts toward retirement. Employers shouldn't rely on outside consultants for these rules, as consultants may not know retirement law.
Employers must report almost all pay types to ORS:
Pay types fall into three groups: reportable, nonreportable, or special cases. You must follow ORS definitions when reporting, even if your organization uses different names for these pay types.
Review the Reporting a working retiree page for additional rules.
Reportable pay counts toward a pension and requires a Detail 2 – Wage and Service (DTL2) record. You must also report most of them on a Detail 4 – DC Contribution (DTL4) record. More information is in the Record types section.
Pay for a coach is reportable. Don't report workers who are independent contractors. This includes referees or umpires not paid directly by the school. How you report these wages depends on the coaching job.
Money taken out of a worker's check is reportable. This includes retirement contributions. It also includes tax-deferred payments (TDP). These are payments used to buy service credit or pay back a refund. Using a bonus to pay for a TDP doesn't make that bonus reportable. These rules must follow IRS laws.
If an employer gives a raise for college credits or a degree, that extra pay is reportable.
Only report STD pay if it meets these rules:
Report these wages only on a DTL2 record. Use code 8500. Don't report them on a DTL4 record.
Pay for a holiday is reportable.
Longevity pay is extra money given for years of service. These payments are usually reportable. Your contracts should explain when and how you pay this money. Don't report a one-time payment given only when someone leaves their job. You also can't report pay meant only to raise a worker's final average compensation.
Merit pay is a reward for reaching a goal. It's reportable if:
Merit pay can't be used to increase an employee's final average compensation. The pay can't be more than the normal salary increase (NSI) schedule.
Pay for work done outside of normal hours is reportable.
Professional services leave is a yearly leave for a worker to join a school union. Professional services released time is time away from normal duties to handle union business. Both are reportable.
The pay a person gets for their normal job is reportable. This includes a teacher’s contract pay or a bus driver’s hourly pay.
Suppose a worker earns pay before they leave but receives it after. This pay is reportable. Use Wage Code 01 or 08. If they earn pay for work done after they retire, review the Reporting retirees section.
You must report pay for ORS members who retire and then return to work.
These are back-wages paid after a new contract is signed. For contracts that ended after June 8, 2011, law prevents these payments. If you must adjust older records.
Pay for sick leave while someone is still an employee is reportable. Don't report pay for unused sick leave.
Some staff work 10 months of the year but choose to get paychecks all year. These are summer spread wages.
Vacation pay is reportable if the worker is still an employee. Don't report pay for unused vacation.
This pay is reportable as long as the person is still an employee.
The pay types listed below aren't reportable on a Detail 2 – Wage and Service (DTL2) record. However, you should report most of these as gross earnings on a Detail 4 – DC Contributions (DTL4) record. These rules only apply to active members of the Michigan Public Schools Employees' Retirement System.
A bonus is a payment that isn't guaranteed. It isn't tied to extra duties or goals. If a payment meets this definition, it's a bonus even if you call it something else. Don't report bonuses on a DTL2 record. This includes signing or retention bonuses. Report these on a DTL4 record instead.
Suppose an employee takes cash instead of a benefit like insurance. That cash isn't reportable on a DTL2 record. You must report this cash on a DTL4 record.
Pay for serving on a school board isn't reportable. Don't report this on DTL2 or DTL4 records.
The IRS sets a yearly limit on pay used for retirement plans. This limit applies to members who joined after October 1, 1996. Any pay above the limit isn't reportable on a DTL2 record. Report the extra amount on a DTL4 record.
Only raises that follow a normal salary schedule are reportable for retirement. If a raise is higher than the allowed amount for that job, the extra pay isn't reportable on a DTL2 record. Report that extra pay on a DTL4 record.
Payments given to encourage early retirement aren't reportable on a DTL2 record. This is true whether you pay it all at once or over time. Report these payments on a DTL4 record.
If you pay an employee back for their FICA taxes, don't report it. This pay isn't reportable on DTL2 or DTL4 records.
Extra perks paid by the school aren't reportable on a DTL2 record. Report these benefits on a DTL4 record.
In-kind pay is any reward that isn't money. This might include goods or services. These aren't reportable on a DTL2 record. Report them on a DTL4 record.
Insurance payments made by the school aren't reportable on a DTL2 record. This includes life and health insurance. Report these on a DTL4 record.
Don't report LTD pay to ORS. It isn't reportable on DTL2 or DTL4 records.
Pay from the U.S. government isn't reportable. If the school pays extra money, differential pay, to a worker on active duty, don't report it on a DTL2 record. However, you must report that differential pay on a DTL4 record.
You can't report pay meant only to raise a worker's final average compensation. These payments are not reportable on a DTL2 record. Report them on a DTL4 record.
ORS views perfect attendance pay as a bonus. It is not tied to extra duties. Don't report it on a DTL2 record. Report it on a DTL4 record.
If you pay a worker back for their pension costs, don't report it. This is usually not reportable on DTL2 or DTL4 records for any contract made after May 30, 2007.
Reimbursements are for costs already paid, like mileage. Allowances are for future costs, like a cell phone plan. Don't report either on a DTL2 record. On a DTL4 record, don't report reimbursements, but you must report allowances.
Pay for a sabbatical leave isn't reportable on a DTL2 record. Report this pay on a DTL4 record.
Suppose a school buysyears of service for an employee. That money isn't reportable on a DTL2 record. Report it on a DTL4 record.
Any pay given only because a worker is leaving isn't reportable on a DTL2 record. Report this pay on a DTL4 record.
Pay for leave that wasn't used isn't reportable on a DTL2 record. Report these payments on a DTL4 record.
You can't report pay given before a person starts work. Reportable wages only start on the first day of actual work. Don't report these early payments on DTL2 or DTL4 records.
Some types of pay require extra details to decide if they count toward your retirement. The Michigan Office of Retirement Services (ORS) uses this information to calculate your pension. Below is a guide to these different payments.
Some employees get extra pay for taking on new tasks. This pay counts as reportable compensation if:
For example, a teacher getting paid to fill in for another class during a prep hour counts as reportable pay.
Starting July 1, 2023, teachers may get extra pay for having too many students. This counts for retirement if the reporting unit offers it to all teachers in that job class. The contract must also list this pay before the work starts.
Cafeteria plans: These plans let employees choose how to use their benefits. Some parts count towards retirement, and some don't.
Flexible Spending Accounts: This is money employees take out of their paychecks for costs like medical bills. This counts as reportable pay.
Flexible Benefit Plans: These are options the employer gives employees, like different health insurance plans. These don't count for retirement because they are fringe benefits, or extra perks.
Tax-sheltered annuities (TSA) or Deferred Compensation: If employees put their own money into a TSA, it counts for retirement. If the employer puts money in, it depends on why they paid it.
Other payments: These are payments on top of your base salary.
Stipends: A set amount of money paid for a specific reason. The reporting unit must explain the stipend to ORS. Then, ORS will decide if it counts as pay for work.
Health care reimbursements: These are money sent back to you for health care costs. These usually don't count for retirement. There's a special rule for 2024 health care refunds. These only count for certain members who were working in 2025.
Legal awards and settlements: This is money given when a court or an arbitrator (a neutral judge) decides an employer made a mistake. If they award you back pay to make you whole, you might get retirement credit for that time. Don't report these payments yourself. Send all legal papers to ORS for review.
The Michigan Public School Employees' Retirement System has rules about how much of a pay raise counts toward retirement. The law limits reportable pay increases. A raise counts only if it follows a normal salary schedule for that job. If a raise is higher than the normal schedule, it doesn't count for retirement.
The Michigan Office of Retirement Services (ORS) checks these raises during an annual wage review. The reporting unit is asked for proof of the salary schedule. This proof shows that the board approved the pay scale before the employee earned the money.
A salary schedule is a list of the base pay an employee can earn over several years.
The allowable increase is the percentage a salary grows from one year to the next on the schedule.
If pay was frozen or lowered because of a bad economy, ORS checks that. The reporting unit must provide papers showing when the pay was cut and when it was brought back.
If a job class has less than three people, ORS reviews similar jobs in other units. ORS uses the percentage increase from those similar jobs to set the limit for your pay.
For pay earned after June 30, 2020, ORS no longer uses the old normal salary increase (NSI) tables for superintendents or administrative assistants. However, for pay earned before July 1, 2020, those old percentage limits still apply.
All gross earnings must be reported on a Detail 4 – DC Contribution (DTL4) record. This is true even for pay that doesn't count for retirement.
Example: If a worker earns $7,000 in taxable income and put $300 into a savings plan, their gross earnings are $7,300.
The IRS sets limits on how much you can save for retirement each year. ORS can't accept any money over these limits. This manual follows the Retirement Act and IRS guidance. These change over time, if this manual differs from the law, the law is the final authority.
