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.
Some pay counts toward a pension and requires a Detail 2 (DTL2)record. Some pay counts towards a State of Michigan 401(k) and 457 Plan and requires a Detail 4 (DTL4) record. More information is in the Record types section.
Report pay for a coach who works directly for your school on DTL2 and DTL4 records. Don’t report pay for a worker who is an independent contractor unless they are a retiree.
Report money taken out of a worker’s paycheck on DTL2 and DTL4 records. This includes money the worker or employer puts into a retirement account. It also includes tax-deferred payments (TDP). These are payments workers make to buy service credit or pay back a refund. Report a TDP on a Detail 3 (DTL3) record.
If an employer gives a raise for college credits or a degree, report that extra pay on DTL2 and DTL4 records.
Report STD pay on a DTL2 record only if it meets these rules:
Report employer-sponsored STD pay on a Detail 4 (DTL4) record. Don't report STD pay from a third-party vendor.
Report pay for a holiday on DTL2 and DTL4 records.
Longevity pay is extra money given for years of service. You usually report these payments on DTL2 and DTL4 records. Worker contracts should explain when and how you pay this money.
Merit pay is a financial reward for reaching a clear goal. Report merit pay on DTL2 and DTL4 records if:
Merit pay can't raise a worker's pay by more than the allowed amount in the normal salary increase schedule.
Report any pay for work done outside of normal hours on both DTL2 and DTL4 records.
Professional services leave is a yearly leave for a worker to work for a school union. Professional services released time is time away from normal duties to handle union business. Report these pay types on DTL2 and DTL4 records.
Report the pay a person earns for performing their regular job on DTL2 and DTL4 records. Examples include a teacher’s contracted salary or a bus driver’s hourly wages.
If a worker earns pay before leaving work but receives it after, report the pay on DTL2 and DTL4 records. If they earn pay for work done after they retire, review the Reporting a working retiree page.
Report pay for workers who retire and then return to work on DTL2 and DTL4 records. Rules for reporting retiree pay differ from active worker pay rules. Review the Reporting a working retiree page.
Retroactive wages are back-pay issued after signing a new contract. Public Act (PA) 54 of 2011 blocked these payments for contracts ending after June 8, 2011. Only use those old rules if you must fix older records.
PA 113 of 2023 canceled that old law. Now you can report retroactive payments for raises in wages and benefits. Report these payments in the pay period when you pay the money. Don't report them in the pay period when the worker earned the money.
Report sick leave pay on DTL2 and DTL4 records while someone remains an active worker. Report pay for unused sick leave only on a DTL4 record.
Some staff work 10 months of the year but choose to receive paychecks all year. This is called summer spread pay. Report summer spread pay on DTL2 and DTL4 records.
Report vacation pay on DTL2 and DTL4 records if the worker remains employed. Report pay for unused vacation time only on a DTL4 record when the worker leaves employment.
Report WWC pay on a DTL2 record as long as the person remains employed.
Don't report nonreportable pay on a DTL2 record. However, you should report most of these pay types on a DTL4 record.
These rules apply only to active members of the Michigan Public Schools Employees’ Retirement System. Review the Reporting a working retiree page for more information.
Report bonus payments on a DTL4 record but not on a DTL2 record. A bonus is a payment that isn't guaranteed. It isn't tied to extra duties or specific goals. If a payment meets this definition, it's a bonus even if you call it something else. This includes signing or retention bonuses.
Sometimes a worker receives a cash payment instead of a specific non-wage benefit like health insurance. Report these payments on a DTL4 record but not on a DTL2 record.
Report pay for serving on a school board on a DTL4 record but not on a DTL2 record.
The IRS sets a yearly limit on pay that can be used for retirement plan calculations. This limit applies to members who joined after Oct. 1, 1996. Report pay above this limit on a DTL4 record, but not on a DTL2 record.
Here are the IRS pay limits for recent calendar years:
Only raises that follow a normal salary schedule count toward a pension. If a raise is higher than the amount shown on the normal salary schedule, that extra amount may not be reportable on a DTL2 record. Report the extra amount on a DTL4 record.
A review of provided documentation allows the Michigan Office of Retirement Services (ORS) to determine the exact amount that counts toward a pension. You then report that approved amount on a DTL2 record.
Pay given to encourage retirement can’t be used for retirement plan calculations. This is true whether you pay it all at once or over time. Report it on a DTL4 record but not on a DTL2 record.
If you pay an employee back for their FICA taxes, don't report it on either DTL2 or DTL4 records.
Report extra perks paid by the employer on a DTL4 record but not on a DTL2 record.
In-kind pay is any reward that isn't cash. This can include physical goods or services. Report it the cash value of in-kind compensation on a DTL4 record but not on a DTL2 record.
Report life or health insurance payments made by the employer on a DTL4 record but not on a DTL2 record.
Report LTD pay on a DTL4 record but not on a DTL2 record.
Report pay from the U.S. government on a DTL4 record but not on a DTL2 record. This includes military leave pay or differential pay to a worker on active duty.
Perfect attendance pay is viewed as a bonus. It isn't tied to extra duties. Report it on a DTL4 record but not on a DTL2 record.
If you pay a worker back for their pension costs, don’t report it on a DTL2 or DTL4 record. If you made the payment under a contract signed before May 30, 2007, contact ORS. ORS will review the contract to decide if the pay is reportable.
Reimbursements cover costs already paid, like mileage. Don't report reimbursements on either a DTL2 or DTL4 record.
Allowances cover future costs, like a cellphone plan. Report allowances on a DTL4 record but not on a DTL2 record.
Report pay for a sabbatical leave on a DTL4 record but not on a DTL2 record.
Report any service credit purchases made by the reporting unit for a worker on a DTL4 record but not on a DTL2 record.
Report any pay given to a worker for leaving employment on a DTL4 record but not on a DTL2 record.
Report pay for leave that wasn't used on a DTL4 record but not on a DTL2 record.
Don't report pay given before a person starts work on either DTL2 or DTL4 records. Reportable pay only starts on the first day of actual work.
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.
