The Final Average Salary is one of three important components that will determine your retirement benefit. Your plan and service credit are the other two. The following explains the Final Average Salary calculation for both the Employees’ Retirement System (ERS) and the Police and Fire Retirement System (PFRS), by each tier of membership.
Three-Year Final Average Salary
Tier 1 (ERS & PFRS)
The FAS is based on the highest average of wages* earned during any three consecutive years. Payment for unused vacation, not to exceed 30 days, will be included in your FAS, if your date of membership is before 4/1/72, and the wages used to calculate your FAS were those immediately preceding your retirement. If your date of membership is 6/17/71 or later, the wages in any 12-month period cannot exceed the earnings in the previous 12-month period by more than 20 percent. Any amount in excess of this will be excluded.
Example of an unlimited three-year FAS calculation for ERS & PFRS members who joined before 6/17/71:
Earnings
Year 1: $39,000
Year 2: $32,000
Year 3: $31,000
Total Earnings over 3 Years: $102,000
$102,000 ÷ 3 = $34,000 FAS
Example of a limited three-year FAS calculation for Tier 1 ERS & PFRS members who joined after 6/17/71:
| Actual Earnings | Limit | Earnings Allowed |
|---|---|---|
| Year 1: $39,000 | $32,000 × 1.2 = 38,400 | $38,400 |
| Year 2: $32,000 | $31,000 × 1.2 = 37,200 | $32,000 |
| Year 3: $31,000 | $26,000 × 1.2 = 31,200 | $31,000 |
| Year 4: $26,000 | ||
| $101,400 ÷ 3 = $33,800 FAS | ||
The earnings in year 1 exceed the earnings in the previous year by more than 20 percent, so the total earnings cannot be used.
Tier 2 ERS & PFRS and Tier 3 PFRS members covered by Article 11
The FAS is based on the highest average of wages* earned during any three consecutive years. Earnings in any year included in the period cannot exceed the average of the previous two years by more than 20 percent. Any amount in excess of this will be excluded. Payment for unused vacation is not included in the FAS calculation.
Example:
| Actual Earnings | Limit | Earnings Allowed |
|---|---|---|
| Year 1: $39,000 | [(32,000 + 31,000) ÷ 2] × 1.2 = 37,800 | $37,800 |
| Year 2: $32,000 | [(31,000 + 26,000) ÷ 2] × 1.2 = 34,200 | $32,000 |
| Year 3: $31,000 | [(26,000 + 25,000) ÷ 2] × 1.2 = 30,600 | $30,600 |
| Year 4: $26,000 | ||
| Year 5: $25,000 | ||
| $100,400 ÷ 3 = $33,467 FAS | ||
The earnings in years 1 and 3 exceed the average of earnings in the previous two years by more than 20 percent, so the total earnings cannot be used.
Tier 3 PFRS members covered by Article 14
The FAS is based on the highest average of wages* earned during any three consecutive years. Earnings in any year included in the period cannot exceed the average of the previous two years by more than 10 percent. Any amount over the 10 percent limit will be excluded. Payment for unused vacation, not to exceed 30 days, will be included in your FAS if the wages used to calculate your FAS were those immediately preceding your retirement.
Example:
| Actual Earnings | Limit | Earnings Allowed |
|---|---|---|
| Year 1: $39,000 | [(32,000 + 31,000) ÷ 2] × 1.1 = 34,650 | $34,650 |
| Year 2: $32,000 | [(31,000 + 26,000) ÷ 2] × 1.1 = 31,350 | $31,350 |
| Year 3: $31,000 | [(26,000 + 25,000) ÷ 2] × 1.1 = 28,050 | $28,050 |
| Year 4: $26,000 | ||
| Year 5: $25,000 | ||
| $94,050 ÷ 3 = $31,350 FAS | ||
The earnings in years 1, 2 and 3 exceed the average of earnings in the previous two years by more than 10 percent, so the total earnings cannot be used.
Tier 3, 4, and 5 ERS
The FAS is based on the highest average of wages* earned during any three consecutive years. Earnings in any year included in the period cannot exceed the average of the previous two years by more than 10 percent. Any amount in excess of this will be excluded. Payment for unused vacation, not to exceed 30 days, will be included in your FAS if the wages used to calculate your FAS were those immediately preceding your retirement. The amount of overtime that can be included in a Tier 5 member’s FAS is limited.
Example:
| Actual Earnings | Limit | Earnings Allowed |
|---|---|---|
| Year 1: $39,000 | [(32,000 + 31,000) ÷ 2] × 1.1 = 34,650 | $34,650 |
| Year 2: $32,000 | [(31,000 + 26,000) ÷ 2] × 1.1 = 31,350 | $31,350 |
| Year 3: $31,000 | [(26,000 + 25,000) ÷ 2] × 1.1 = 28,050 | $28,050 |
| Year 4: $26,000 | ||
| Year 5: $25,000 | ||
| $94,050 ÷ 3 = $31,350 FAS | ||
The earnings in years 1, 2 and 3 exceed the average of earnings in the previous two years by more than 10 percent, so the total earnings cannot be used.
Tier 5 PFRS covered by Article 22
The FAS is based on the highest average of wages earned during any three consecutive years. Earnings in any year included in the period cannot exceed the average of the previous two years by more than 20 percent. Any amount in excess of this will be excluded. Payment for unused vacation is not included in the FAS. In addition, overtime pay that exceeds 15 percent of a member’s regular annual wages cannot be used in the FAS calculation.
Example:
| Actual Earnings | Limit | Earnings Allowed |
|---|---|---|
| Year 1: $39,000 | [(32,000 + 31,000) ÷ 2] × 1.2 = 37,800 | $37,800 |
| Year 2: $32,000 | [(31,000 + 26,000) ÷ 2] × 1.2 = 34,200 | $32,000 |
| Year 3: $31,000 | [(26,000 + 25,000) ÷ 2] × 1.2 = 30,600 | $30,600 |
| Year 4: $26,000 | ||
| Year 5: $25,000 | ||
| $100,400 ÷ 3 = $33,467 FAS | ||
The earnings in years 1 and 3 exceed the average of earnings in the previous two years by more than 20 percent, so the total earnings cannot be used.
Tier 6 (ERS & PFRS)
The FAS is based on the highest average of wages* earned during any five consecutive years. Earnings in any year included in the period cannot exceed the average of the previous four years by more than 10 percent. Any amount in excess of this will be excluded. In addition, the following payments are not included in the FAS calculation:
- Payment for unused vacation;
- Overtime in excess of the limitation; and
- Earned compensation which exceeds the Governor’s annual salary, currently $179,000.
Example:
| Actual Earnings | Limit | Earnings Allowed |
|---|---|---|
| Year 1: $39,000 | [(32,000 + 31,000 + 26,000 +25,000) ÷ 4] × 1.1 = 31,350 | $31,350 |
| Year 2: $32,000 | [(31,000 + 26,000 + 25,000 + 24,000) ÷ 4] × 1.1 = 29,150 | $29,150 |
| Year 3: $31,000 | [(26,000 + 25,000 + 24,000 + 23,000) ÷ 4] × 1.1 = 26,950 | $26,950 |
| Year 4: $26,000 | [(25,000 + 24,000 + 23,000 + 22,000) ÷ 4] × 1.1 = 25,850 | $25,850 |
| Year 5: $25,000 | [(24,000 + 23,000 + 22,000 + 21,000) ÷ 4] × 1.1 = 24,750 | $24,750 |
| Year 6: $24,000 | ||
| Year 7: $23,000 | ||
| Year 8: $22,000 | ||
| Year 9: $21,000 | ||
| $138,050 ÷ 5 = $27,610 FAS | ||
The earnings in each of the five years exceed the average of earnings in the previous four years by more than 10 percent, so the total earnings cannot be used.
PFRS One-Year Final Average Salary
This benefit must be adopted by your employer. (It is not available to PFRS members covered by Article 14 and generally not available to Tier 6 members.)
The one-year FAS is based on the total regular compensation earned during the 12 months of service immediately preceding retirement minus any payment for accumulated vacation. Regular compensation includes payments earned during the 12 months for the following items:
- Regular salary
- Overtime (limited for Tier 5 members)
- Holidays
Regular compensation cannot exceed the wages in the previous 12-month period by more than 20 percent. Any amount over the 20 percent is excluded from the calculation.
Is there a salary limitation on a one-year FAS?
Yes. The earnings used in the calculation of the one-year FAS cannot exceed the earnings in the 12 months immediately preceding the last 12 months of employment by more than 20 percent. The following is an example of a one-year FAS calculation that has been limited.
Example:
| Actual Earnings | Limit | Earnings Allowed |
|---|---|---|
| Year 1: $63,000 | ||
| Year 2: $52,000 | 52,000 × 1.2 = 62,400 | $62,400 |
Because the member’s current-year earnings exceeded the previous year’s compensation by more than 20 percent, the excess, $600, was not used in the calculation of the one-year FAS.
The Deficit Reduction Plan and FAS
This information applies only to Retirement System members who are employees of State agencies.
CSEA Members
Reduced earnings and five fewer days worked will be reported to us for fiscal year 2011–2012. If this year falls within your FAS calculation, we will take five days and the equivalent salary from the prior year. As a result, there will be little or no impact on your FAS.
Since the fiscal year 2012–2013 salary reduction will be repaid, if your FAS falls within this year, the reduction will have no impact.
PEF and M/C Members
Although reduced earnings will be reported to us for fiscal years 2011–2012 and 2012–2013, the salary will be repaid. If the reduction or repayment period falls within your FAS calculation, the repaid salary will be included and there will be no impact on your FAS.
*Wages include regular salary, overtime, and recurring longevity payments earned within the period used to determine final average salary. For Tier 5 members, overtime that can be used in the FAS calculation is limited.
(Rev. 4/12)
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