WSR 97-03-016
PERMANENT RULES
DEPARTMENT OF
RETIREMENT SYSTEMS
[Filed January 6, 1997, 4:50 p.m.]
Date of Adoption: January 6, 1997.
Purpose: The rules codify the department's interpretation of the term "earnable compensation" for TRS Plan I, Plan II and Plan III as found in RCW 41.32.010(10).
Citation of Existing Rules Affected by this Order: Repealing WAC 415-112-410, 415-112-411, and 415-112-414.
Statutory Authority for Adoption: RCW 41.50.050.
Adopted under notice filed as WSR 96-18-073 on September 3, 1996.
Changes Other than Editing from Proposed to Adopted Version: WAC 415-112-4605 was amended to include a reference to personal leave in addition to sick leave and annual leave; and WAC 415-112-477 was amended to make it clear that any payment upon reinstatement or in lieu of reinstatement would be prorated out over the entire period that the employee was absent from work.
Number of Sections Adopted in Order to Comply with Federal Statute: New 0, amended 0, repealed 0; Federal Rules or Standards: New 0, amended 0, repealed 0; or Recently Enacted State Statutes: New 0, amended 0, repealed 0.
Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, amended 0, repealed 0.
Number of Sections Adopted on the Agency's own Initiative: New 24, amended 0, repealed 0.
Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 24, amended 0, repealed 0.
Number of Sections Adopted using Negotiated Rule Making: New 0, amended 0, repealed 0; Pilot Rule Making: New 0, amended 0, repealed 0; or Other Alternative Rule Making: New 0, amended 0, repealed 0.
Effective Date of Rule: Thirty-one days after filing.
January 6, 1997
Sheryl Wilson
Director
NEW SECTION
WAC 415-112-0160 Reportable compensation--Definition. "Reportable
compensation" means earnable compensation as that term is defined in RCW
41.32.010(10).
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NEW SECTION
WAC 415-112-444 Purpose and scope of earnable compensation rules.
WAC 415-112-445 through 415-112-491 codify the department's existing
interpretation of statutes and existing administrative practice regarding
classification of payments as earnable compensation in TRS Plan I, TRS
Plan II and TRS Plan III. The department has applied and will apply
these rules to determine the proper characterization of payments
occurring prior to the effective dates of these sections.
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NEW SECTION
WAC 415-112-445 Reportable compensation table. The following table
is provided as a quick reference guide to help you characterize payments
under Plan I, Plan II and Plan III. Be sure to turn to the referenced
rule to ensure that you have correctly identified the payment in
question. The department determines basic salary based upon the nature
of the payment, not the name applied to it, see WAC 415-112-450.
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NEW SECTION
WAC 415-112-450 What compensation can be reported? In order for payments to be subject to retirement system contributions and included in the calculation of a member's retirement benefit, those payments must meet the definition of earnable compensation in RCW 41.32.010(10).
(1) Payments for services rendered. To determine whether a payment meets this definition and can be reported, ask the following questions:
(a) Was the payment earned as a salary or wage for services rendered during a fiscal year? If the answer is no, the payment is not reportable. If the answer is yes, ask question (b).
(b) Was the payment paid by an employer to an employee? If the answer is no, the payment is not reportable. If the answer is yes, you may report the payment.
(2) Payments included that are not for services rendered. The legislature has included certain specific payments within the definition of earnable compensation even though those payments are not for services rendered by the employee to the employer. (See WAC 415-112-472 through 415-112-477.)
(3) Reportable compensation is earned when the service is rendered,
rather than when payment is made.
Example: If a member works during June but does not receive payment for
the work until July, the earnable compensation was earned
during June and must be reported to the department as June
earnings.
(4) Salary characterizations are based upon the nature of the payment. A payment is reportable compensation if it meets the criteria of subsection (1) or (2) of this section. The name given to the payment or the document authorizing it is not controlling in determining whether the payment is reportable compensation. The department determines whether a payment is reportable compensation by considering:
(a) What the payment is for; and
(b) Whether the reason for the payment brings it within the
statutory definition of earnable compensation.
Example: A payment conditioned upon retirement is not reportable
compensation. Attaching the label "longevity" to the payment
does not change the fact that the payment is conditioned on
retirement. Such a payment is not for services rendered and
will not be counted as reportable compensation despite being
identified by the employer as a longevity payment.
(5) Differences in reportable compensation between plans. WAC 415-112-450 through 415-112-491 define reportable compensation for each of the three TRS plans.
(a) "Earnable compensation" is defined in very similar terms for both TRS Plan I and TRS Plan II. The characterization of payments as reportable compensation or not reportable compensation in WAC 415-112-450 through 415-112-491 is the same for both TRS Plan I and TRS Plan II except as specifically noted.
(b) "Earnable compensation" is defined identically for TRS Plan II
and TRS Plan III. The characterization of payments as reportable
compensation or not reportable compensation in WAC 415-112-450 through
415-112-491 is the same for both TRS Plan II and TRS Plan III.
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NEW SECTION
WAC 415-112-460 Payments for services rendered. WAC 415-112-4601
through 415-112-4609 discuss types of payments for services rendered.
Each of the payment types are reportable compensation for TRS Plan I.
Certain types of payments for services rendered are excepted from
reportable compensation for TRS Plan II and Plan III, see WAC 415-112-4605.
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NEW SECTION
WAC 415-112-4601 Contract salary payments. (1) Base contract. The base contract establishes the payment for teaching or administrative services provided during each day of the district's school year. For classroom teachers, the base contract authorizes the salary for providing basic education services per RCW 28A.405.200. For administrators and principals, other items may be included. Because services are rendered in exchange for this payment, it is reportable compensation. This does not mean that a payment is reportable compensation solely because it is authorized in an employee's base contract. Rather than relying on the name of a payment or the document where it is authorized, you must evaluate whether services were rendered in exchange for the payment.
(2) Evening or summer school contracts. Evening or summer school payments are for additional time worked. These payments are often authorized in a supplemental contract. These payments are for services rendered and are reportable compensation.
(3) Supplemental or TRI contracts under RCW 28A.400.200. A school district may compensate an employee for additional time, responsibility or incentives with a supplemental contract.
(a) If the payment is for additional time, then it is for services rendered and qualifies as reportable compensation.
(b) If the payment is for additional responsibility (i.e., additional service which does not specifically require more time) within the regularly scheduled working day, then it is also for services rendered and is reportable. Examples of additional responsibility include payments linked to extra enrollment or additional duties outside the scope of the base contract.
(c) If the payment is made as an incentive, then it is also for services rendered and is reportable compensation. Incentive payments include payments for meeting performance goals specified by the employer.
(4) Longevity or educational attainment. Salaries for all teachers and most administrators are determined by looking at the individual's teaching experience and educational attainment.
(a) A member who receives a salary increase based upon longevity or educational attainment receives a higher salary without working more hours. The higher salary indicates a higher level of service due to greater experience or more education. The payment is therefore a payment for additional service and is reportable compensation.
(b) Simply attaching the label "longevity" to a payment does not
guarantee that it will be reportable compensation. If a payment
described as a longevity payment is actually based upon some other
criteria, such as retirement or notification of intent to retire, the
payment may not be reportable.
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NEW SECTION
WAC 415-112-4603 Performance bonuses. Bonuses that are based upon
meeting certain performance goals or having to work under unusual
conditions, such as over enrollment, are earned for services rendered and
are reportable compensation.
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NEW SECTION
WAC 415-112-4604 Cafeteria plans. Compensation received in any
form under the provisions of a "cafeteria plan," "flexible benefits
plan," or similar arrangement pursuant to section 125 of the United
States Internal Revenue Code is reportable compensation if the employee
has an absolute right to receive cash or deferred cash payments in lieu
of the fringe benefits offered. In such an instance, the fringe benefits
are being provided in lieu of cash and are considered reportable
compensation, just as the cash would be. If there is no cash option, the
value of the fringe benefit is not a salary or wage and is not reportable
compensation, see WAC 415-112-480.
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NEW SECTION
WAC 415-112-4605 Leave payments earned over time. (1) Sick, annual, and personal leave usage. Sick leave, annual leave, and personal leave is accumulated over time and paid to a person during a period of excused absence. Leave accrues at a prescribed rate, usually a certain number of hours per month. The employee earns a leave day by rendering service during the month the leave was accumulated. When the employee uses his or her accrued leave by taking a scheduled work day off with pay, the payment is deferred compensation for services previously rendered. The payment is a salary or wage earned for services rendered and is reportable.
(2) Annual leave cash outs. Annual leave and personal leave cash outs, like payments for leave usage, are deferred compensation earned for services previously rendered.
(a) Plan I. Annual leave and personal leave cash outs are reportable for TRS Plan I.
(b) Plan II and Plan III. Although the payments are for services rendered, annual leave and personal leave cash outs are excluded from the definition of reportable compensation in TRS Plan II and TRS Plan III, see RCW 41.32.010 (10)(b).
(3) Sick leave cash outs. Sick leave cash outs are deferred
compensation for services previously rendered. However, these payments
are statutorily excluded from reportable compensation for all TRS Plans.
See RCW 41.32.010(10), 41.04.340, 28A.400.210 and 28A.310.490.
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NEW SECTION
WAC 415-112-4607 Retroactive salary increases. A retroactive
salary payment to an employee who worked during the covered period is a
payment of additional salary for services already rendered.
Note: A retroactive salary increase is not the same as a retroactive
payment upon reinstatement or in place of reinstatement of a
terminated or suspended employee. For treatment of back
payments for periods where services were not rendered, see WAC
415-112-477.
(1) To qualify as reportable compensation under this section, the payment must be a bona fide retroactive salary increase. To ensure that is the case, the retroactive payment must be made pursuant to:
(a) An order or conciliation agreement of a court or administrative agency charged with enforcing federal, state, or local statutes, ordinances, or regulations protecting employment rights;
(b) A bona fide settlement of such a claim before a court or administrative agency; or
(c) A collective bargaining agreement.
(2) The payments will be deemed earned in the period in which the
work was done.
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NEW SECTION
WAC 415-112-4608 Severance pay earned over time. (1) Plan I.
Severance pay must be earned over time in the same manner as annual leave
or sick leave in order to be deferred compensation for services
previously rendered and to be reportable in Plan I. Severance pay is
earned over time if the employment contract(s) entered into at the
beginning of the period of employment specify that a certain amount of
severance pay will be earned in the coming year in consideration for
services rendered.
Example: Mr. Jones is a school administrator. Since the beginning of
his term of employment with the district, his contract has
specified that he will earn one week of severance pay for
every year of his employment. The earned severance pay will
be paid at the time of his separation. His severance pay is
reportable compensation. When Mr. Jones retires, the two
weeks severance pay that he earned during his two highest paid
years (i.e., one week per year for two years) will be included
in his retirement calculation.
(2) Plans II and III. All forms of severance pay are excluded from earnable compensation for Plans II and III by RCW 41.32.010(10).
(3) Severance pay that is not earned over time is not earned for
services rendered and is not reportable in Plan I, II, or III, see WAC
415-112-491.
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NEW SECTION
WAC 415-112-4609 Payments earned by, but not made to a member. (1) Retirement contributions. Payments deducted from employee compensation for employee retirement contributions are reportable. Employer contributions are a fringe benefit and are not reportable, see WAC 415-112-480.
(2) Tax withholding. Payments withheld to satisfy federal tax obligations qualify as reportable compensation.
(3) Voluntary deductions. Payments deducted voluntarily, such as
403(b) plan contributions or other authorized deductions, are reportable.
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NEW SECTION
WAC 415-112-470 Payments not for services rendered. In general, payments cannot be reported to the retirement system unless they are for services rendered. However, the legislature has identified some types of compensation (in RCW 41.32.010 and 41.32.267) which are reportable even though they are not for services rendered.
(1) WAC 415-112-472 through 415-112-477 discuss all payments that are not for services rendered that nonetheless qualify as reportable compensation.
(2) WAC 415-112-480 through 415-112-491 discuss some payments that are not for services rendered and so do not qualify as reportable compensation. A payment not for services rendered other than those identified in WAC 415-112-472 through 415-112-477 is not reportable compensation even if it is not listed in WAC 415-112-480 through 415-112-491.
(3) A payment made in lieu of a payment that is not for services
rendered (such as a payment made in lieu of a car allowance) will be
treated in the same way that the original payment was treated. Such a
payment is not for services rendered and is not reportable.
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NEW SECTION
WAC 415-112-471 Legislative leave. If an employee takes a leave without pay to serve in the legislature, the member is entitled to service and reportable compensation credit for the period.
(1) Plan I. The salary the employee would have earned is reportable compensation if the employee serves at least five years in the legislature. Employer contributions are not required on this imputed payment. Employee contributions are required.
(2) Plan II and Plan III. The employee may choose between:
(a) The reportable compensation he or she would have earned had the member not served in the legislature; or
(b) The actual reportable compensation received for teaching plus the legislative reportable compensation.
If the employee selects option (a), he or she is responsible for
paying the additional employer and employee contributions to the extent
the reportable compensation reported is higher than it would have been
under (b) of this subsection.
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NEW SECTION
WAC 415-112-473 Paid leave not earned over time. If paid leave is not based upon earned leave accumulated over time, the payment is not a deferred payment for services previously rendered. Further, the member on leave is not currently rendering services in exchange for the payment. However, RCW 41.32.267, 41.32.810 and 41.32.865 identify payments received from the employer while on paid leave as reportable for TRS. Contributions are due on these payments to the extent they meet the following conditions:
(1) The payment is equal to the salary for the position that the person is on leave from;
(2) The payment is actually from the employer. Payments from an
employer that are conditioned upon reimbursement from a third party are
payments from the third party. Because the payments are not from the
employer, they are not reportable compensation. The only exception is
union leave paid by the employer subject to reimbursement from the union
under the conditions specified in RCW 41.32.267 (Plan I), 41.32.810 (Plan
II), 41.32.865 (Plan III), and WAC 415-112-475.
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NEW SECTION
WAC 415-112-475 Union leave. If a member takes an authorized leave
of absence to serve as an elected official of a labor organization and
the employer pays the member on leave subject to reimbursement from the
union, the person's pay qualifies as reportable compensation provided
that all the conditions of RCW 41.32.267 (Plan I), RCW 41.32.810 (Plan
II), or RCW 41.32.865 (Plan III), as appropriate, are met.
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NEW SECTION
WAC 415-112-477 Reinstatement or payment instead of reinstatement.
If an employer makes payments to an employee for periods where the
employee was not employed and those payments are made upon reinstatement
of the employee or instead of reinstatement, the payments are not earned
for services rendered. However, RCW 41.40.010(10) specifically
designates such payments as reportable compensation. The payments are
only reportable to the extent that they are equivalent to the salary the
employee would have earned had he or she been working. Any such payment
will be prorated over the entire period that the employee was suspended,
terminated, or otherwise absent from work.
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NEW SECTION
WAC 415-112-480 Fringe benefits. Payments made by an employer to
a third party to provide benefits for an employee are not part of the
employee's salary or wage. Those payments are not reportable
compensation. Examples of these types of payments are insurance premiums
(other than those made under bona fide cafeteria plans, see WAC 415-112-4604) and employer retirement contributions.
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NEW SECTION
WAC 415-112-482 Disability insurance. Disability insurance
payments are paid to persons for periods when they are unable to work.
Because no services are rendered in exchange for these payments, they are
not reportable compensation. This is true whether the payments come
directly from the employer or from an insurance company.
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NEW SECTION
WAC 415-112-483 Workers' compensation. Workers' compensation is
paid to persons for periods when they are unable to work. Workers'
compensation payments, like disability insurance, are not payments for
services rendered and are not reportable compensation.
Example: Some employees on unpaid disability leave submit their
workers' compensation payments to their employer who then
issues the employee a check for the same amount through the
payroll system. This exchange of payments does not change the
character of the workers' compensation payment. Whether the
payments come from the department of labor and industries, a
self-insured employer, or have the appearance of coming from
the employer, workers' compensation payments are not payments
for services rendered and do not qualify as reportable
compensation.
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NEW SECTION
WAC 415-112-485 Illegal payments. Payments made by an employer in
excess of the employer's legal authority are not reportable.
Example: School districts are prohibited from increasing an employee's
salary to include a payment in lieu of a fringe benefit per
RCW 28A.400.220. If a district increased a person's salary
instead of providing a district car, the payment would be
illegal and could not be reported.
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NEW SECTION
WAC 415-112-487 Optional payments. If an employee can receive an
additional payment only on the condition of taking an action other than
providing service to the employer, the payment is not for services
rendered and is not reportable compensation.
Example: An employer offers to make a contribution to a deferred
compensation plan on behalf of an employee only if the
employee agrees to have a portion of his or her salary
deferred. Because the employee does not have a right to
receive the contribution based solely on the rendering of
service, the payment is not reportable compensation.
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NEW SECTION
WAC 415-112-489 Reimbursements for expenses. Reimbursements are
not earned for services rendered and thus are not reportable
compensation. Typical reimbursement payments include mileage
reimbursements for use of a private car on employer business, see WAC
415-112-41301, or meal and lodging reimbursements for business trips.
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NEW SECTION
WAC 415-112-490 Retirement bonus or incentive. A payment made to
an employee as a bonus or incentive when retiring or terminating is not
a payment for services rendered. Rather, the payment is made in exchange
for an employee's promise or notification of intent to retire or
terminate. A retirement or termination bonus or incentive is not
reportable compensation.
Example: A collective bargaining agreement authorizes a school district
to pay employees a higher salary during the last two years of
employment if the employee gives written notice of his or her
intent to retire. Because the payment is in exchange for the
agreement to retire and not for services, the payment is not
reportable compensation.
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NEW SECTION
WAC 415-112-491 Severance pay not earned over time--Contract buy
out. Severance pay that is not earned over time is not earned for
services rendered and is not reportable. An example of severance pay not
earned over time is a payment negotiated as part of termination
agreement.
Example: At the time of an administrator's termination, the school
district agrees to pay him a lump sum payment equal to two
months salary. The school district identifies this payment as
"severance pay." Because the payment was not earned for
services rendered, it is not reportable compensation and will
not be included in his retirement calculation.
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REPEALER
The following sections of the Washington Administrative Code are
repealed:
WAC 415-112-410 Earnable compensation for Plan I TRS members.
WAC 415-112-411 Earnable compensation for Plan II TRS members.
WAC 415-112-414 Back pay award or settlement--Definition--Allocated by the department for retirement system purposes.