A reporting unit can pay its staff in many ways. However, not all pay counts toward an employee’s final average compensation. The final average compensation (or FAC) is the average pay used to figure out pension amounts. These pensions are part of the Michigan Public Schools Retirement System.
The law defines what pay counts as final average compensation. Only the law, this manual, and the Michigan Office of Retirement Services (ORS) decide which pay is eligible. Some schools use consultants to set pay rates. These consultants may not know the retirement laws. Schools should not rely only on them for these rules.
If pay counts toward an employee's FAC, you must report it to ORS. Use a Detail 2 – Wage and Service (DTL2) record for this. If pay does not count toward the FAC, do not put it on a DTL2 record. You might report that pay on a Detail 4 – Defined Contributions (DTL4) record instead.
Some staff have a Defined Contribution (DC) Plan. This is a type of retirement account like a 401k. Pay for DC plans is handled differently than pay for pensions. You can find those rules in section 4.06 of this manual. These rules only apply to active members. If you need to report pay for a retiree who returned to work, see section 9.01.
Every reporting unit must know how to report each payment. Payments fall into three groups: reportable, nonreportable, or special cases. Your school might use different names for these payments. Even if the names differ, you must follow the definitions from ORS.
Reportable pay counts toward a pension and requires a DTL2 record. You must also report most of them on a Detail 4 – DC Contribution (DTL4) record.
Pay for a coach is reportable. Do not report people 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. See section 7.03.02 for more help.
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 does not make that bonus reportable. These rules must follow IRS laws.
Suppose your salary plan gives a raise for college credits or a degree. That extra pay is reportable.
You only report STD pay if it meets these rules:
Report these wages only on a DTL2 record. Use code 8500. Do not report them on a DTL4 record.
Pay for a holiday while a worker is away 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. Do not report a one-time payment given only when someone leaves their job. You also cannot report pay meant only to raise a worker's final average compensation.
Merit pay is a reward for reaching a goal. It is reportable if:
You cannot use merit pay just to increase an employee's final average compensation. The pay cannot 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 (PSRT) is time away from normal duties to handle union business. Both are reportable. See section 3.02 or 7.03.06 for the specific rules.
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, see section 9.01.
You must report pay for ORS members who retire and then return to work.
Pay for sick leave while someone is still an employee is reportable. Do not report pay for unused sick leave.
Some staff work 10 months but choose to get paychecks all year. These are summer spread wages. See section 7.03.03 for details.
Vacation pay is reportable if the worker is still an employee. Do not report pay for unused vacation.
This pay is reportable as long as the person is still an employee.
The pay types listed below are not reportable on a Detail 2 – Wage and Service (DTL2) record. However, you should usually report these as gross earnings on a Detail 4 – DC Contributions (DTL4) record.
These rules only apply to active members of the Michigan Public Schools Retirement System. For information on retirees who return to work, see section 9.01.
A bonus is a payment that is not guaranteed. It is not tied to extra duties or goals. If a payment meets this definition, it is a bonus even if you call it something else. Do not report bonuses on a DTL2 record. This includes signing or retention bonuses. Report these on a DTL4 record instead.
Suppose a member takes cash instead of a benefit like insurance. That cash is not reportable on a DTL2 record. You must report this cash on a DTL4 record.
Pay for serving on a school board is not reportable. Do not 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 is not reportable on a DTL2 record. Report the extra amount on a DTL4 record.
|
Calendar year |
Limit |
|
2025 |
$350,000 |
|
2024 |
$345,000 |
|
2023 |
$330,000 |
|
2022 |
$305,000 |
|
2021 |
$290,000 |
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 is not reportable on a DTL2 record. Report that extra pay on a DTL4 record. See section 4.05 for more details.
Payments given to encourage early retirement are not 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, do not report it. This pay is not reportable on DTL2 or DTL4 records.
Extra perks paid by the school are not reportable on a DTL2 record. Report these benefits on a DTL4 record.
In-kind pay is any reward that is not money. This might include goods or services. These are not reportable on a DTL2 record. Report them on a DTL4 record.
Insurance payments made by the school are not reportable on a DTL2 record. This includes life and health insurance. Report these on a DTL4 record.
Do not report long-term disability (LTD) pay to ORS. It is not reportable on DTL2 or DTL4 records.
Pay from the U.S. government is not reportable. If the school pays extra money (differential pay) to a worker on active duty, do not report it on a DTL2 record. However, you must report that differential pay on a DTL4 record.
You cannot 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. Do not report it on a DTL2 record. Report it on a DTL4 record.
If you pay a worker back for their pension costs, do not 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. Do not report either on a DTL2 record. On a DTL4 record, do not report reimbursements, but you must report allowances.
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, see section 7.05.07.
Pay for a sabbatical leave is not reportable on a DTL2 record. Report this pay on a DTL4 record.
Suppose a school buys years of service for an employee. That money is not reportable on a DTL2 record. Report it on a DTL4 record.
Any pay given only because a worker is leaving is not reportable on a DTL2 record. Report this pay on a DTL4 record.
Pay for leave that was not used is not reportable on a DTL2 record. Report these payments on a DTL4 record.
You cannot report pay given before a person starts work. Reportable wages only start on the first day of actual work. Do not 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.
Additional duties sometimes you 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.
Overload 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 let you choose how to use your benefits. Some parts count for retirement, and some do not.
Flexible Spending Accounts: This is money you take out of your own paycheck for costs like medical bills. This counts as reportable pay.
Flexible Benefit Plans: These are options your employer gives you, like different health insurance plans. These do not count for retirement because they are "fringe benefits" (extra perks).
Tax-sheltered annuity (TSA) or Deferred Compensation
If you put your own money into a TSA, it counts for retirement. If your employer puts money in, it depends on why they paid it.
Other payments are payments on top of your base salary.
Stipends are 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 are money sent back to you for health care costs. These usually don't count for retirement. There is a special rule for 2024 health care refunds. These only count for certain members who were working in 2025.
Legal awards and settlements where 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. Do not report these payments yourself. Send all legal papers to ORS for a review.
The Michigan Public Schools 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 does not count for retirement.
The Michigan Office of Retirement Services (ORS) checks these raises during an annual wage review. They will ask the Reporting unit 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 will look at that. You must provide papers showing when the pay was cut and when it was brought back.
If a job class has fewer than three people, ORS looks at similar jobs in other units. They use 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 does not count for your pension.
Example: If you earn $7,000 in taxable income and put $300 into a savings plan, your gross earnings are $7,300.
The IRS sets limits on how much you can save for retirement each year. ORS cannot accept any money over these limits. This manual follows the Retirement Act. If this text ever disagrees with the law, the law is the final authority.
