Final Average Salary: Decoded

Diner, Senior, CoffeeUnderstanding what wages your employer is reporting to LAGERS is important because those wages have a direct impact on your benefit calculation; the higher the wages, the greater your monthly benefit at retirement.

When you’re ready to retire, LAGERS calculates your Final Average Salary by looking at your highest consecutive either 36 or 60 months of wages from your last 120 months (10 years) of credited service. We get a lot of questions about what is and is not included in this calculation and how that information is reported to LAGERS. Here are a few of the most frequently asked questions.

What wages are reported to LAGERS?

Your employer submits a monthly wage report with your gross wages that were paid to you during the month. These gross wages include your normal pay, any overtime worked, and vacation or sick pay used. Other items that should be included are any recurring bonuses, recurring sick/vacation buy-backs, and any uniform or other allowances.

Keep in mind, everything LAGERS does is on a monthly basis, including your ‘highest wage’ period. This means that what you see as an ‘annual’ salary period for LAGERS purposes may not match your W-2.

I make elective deferrals into a retirement account; does that reduce my LAGERS wages?

Elective deferrals into any retirement account, including any 4% withholding for LAGERS, do not reduce your LAGERS wages. Remember that your LAGERS benefit is based on gross wage, so any deferrals, even pre-tax ones, will still count towards your LAGERS Final Average Salary.

I received a reimbursement from my employer for a conference I attended this year, is that reportable?

No; reimbursements are not considered compensation, and so they are not included in your LAGERS wages.

I was on workers compensation for three months last year, how will those three months of lower wages impact my benefit?

This one can look a little confusing. When a member is on worker’s comp, their employer is actually reporting no wage for that period, even if the member was receiving partial compensation. Don’t fret! If you find yourself in this position, remember that you are still receiving service for all months you are on workers comp, however, when LAGERS calculates your Final Average Salary, those months are excluded from the salary calculation, as if they never existed.

I took a lower paying job with my employer three years before I plan to retire, how does this impact my Final Average Salary?

A lower paying position may or may not affect your final benefit. Here’s why: it’s a common misconception that your Final Average Salary must be the last three or five years of salary, but that is not the case. LAGERS looks at the highest consecutive 36 or 60 months from within your last 120 months of credited service. If you are considering moving into a lower paying position, or perhaps cutting your hours back, just keep in mind that as long as at least 36 or 60 months worth of your higher paying service remain within that 120 month window, your benefit will not be adversely affected.

I will receive a lump sum payout of my vacation and sick leave when I retire, is this included in my Final Average Salary?

One time lump sum payments are never reportable to LAGERS. If you are taking a payout of vacation or sick time prior to retirement, it will not be included in your benefit calculation. If, however, your employer pays that time out as if you were still working, you simply need to delay your retirement effective date until the payments stop, and you will continue to earn credited service for as long as the payments continue.

Want to see what wages your employer has been reporting for you? Log on to your myLAGERS account today!

Elizabeth Althoff Public Relations Specialist

Elizabeth Althoff
Public Relations Specialist

 

 

 

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