WSR 98-01-069

PROPOSED RULES

DEPARTMENT OF

RETIREMENT SYSTEMS

[Filed December 11, 1997, 4:42 p.m.]

Original Notice.

Preproposal statement of inquiry was filed as WSR 96-07-035.

Title of Rule: Defining compensation earnable for the public employees' retirement system (PERS) and making technical corrections to rules defining earnable compensation for the teachers' retirement system (TRS).

Purpose: To codify department interpretations of the definition of "earnable compensation" for TRS Plan 1 and TRS Plan 2 found in RCW 41.40.010(8).

Statutory Authority for Adoption: RCW 41.50.050.

Statute Being Implemented: RCW 41.40.010(8).

Summary: The proposed rules codify the department's interpretation of the term "compensation earnable" for PERS Plan 1 and PERS Plan 2 as found in RCW 41.40.010(10). The proposed rules also make technical corrections to the TRS earnable compensation rules adopted at WSR 97-03-016.

Reasons Supporting Proposal: The definition of "compensation earnable" in the TRS statute does not discuss many specific types of payments. The proposed rules provide an analytical framework for a determination of whether a particular payment is compensation earnable as well as a detailed discussion of different types of payments. This should help members, employers and department staff in making correct determinations of compensation earnable.

Name of Agency Personnel Responsible for Drafting: Paul Neal, 1025 East Union Avenue, Olympia, WA 98504-8380, (360) 709-5300; Implementation and Enforcement: Jack Bryant, 1025 East Union Avenue, Olympia, WA 98504-8380, (360) 709-5300.

Name of Proponent: Department of Retirement Systems, governmental.

Rule is not necessitated by federal law, federal or state court decision.

Explanation of Rule, its Purpose, and Anticipated Effects: The definition of "compensation earnable" in the PERS statute does not discuss many specific types of payments. The proposed rules provide an analytical framework for a determination of whether a particular payment is compensation earnable as well as a detailed discussion of different types of payments. This should help members, employers and department staff in making correct determinations of compensation earnable.

Proposal Changes the Following Existing Rules: WAC 415-108-450, 415-108-460, and 415-108-490 are each repealed. The standards currently contained in those WACs have been revised into a more readable format and included as part of the proposed rule. WAC 415-112-445, 415-112-4608, and 415-112-4609 are each amended to correct minor errors appearing in the current codifications.

No small business economic impact statement has been prepared under chapter 19.85 RCW. The rules apply to public employers and employees participating in the retirement systems administered by the Department of Retirement Systems. No private businesses are affected by the rules, therefore, no small business economic impact statement is required.

RCW 34.05.328 does not apply to this rule adoption. The Department of Retirement Systems is not one of the agencies that this provision applies to. The Department of Retirement Systems does not opt to voluntarily bring itself within the coverage of those rules.

Hearing Location: Boardroom, 2nd Floor, 1025 East Union Avenue, Olympia, WA 98504-8380, on January 30, 1998, at 11:00 - 12:00.

Assistance for Persons with Disabilities: Contact Jack Bryant by January 27, TDD (360) 586-5450, or (360) 709-4747.

Submit Written Comments to: Paul Neal, P.O. Box 48380, Olympia, WA 98504-8380, FAX (360) 753-3166, by January 23, 1998.

Date of Intended Adoption: February 3, 1998.

December 11, 1997

Paul Neal

Rules Coordinator

AMENDATORY SECTION (Amending WSR 95-16-053, filed 7/25/95, effective 8/25/95)

WAC 415-108-010 Definitions. (((1))) All definitions in RCW 41.40.010 apply to terms used in this chapter. Other terms relevant to the administration of chapter 41.40 RCW are defined in this chapter.

(((2) As used in this chapter, unless a different meaning is plainly required by the context:

"Annual leave" means leave provided by an employer for the purpose of vacation and does not include leave for illness, personal business if in addition to and different than vacation leave, or other paid time off from work: Provided, however, That if an employer authorizes only one type of leave to provide paid leave for vacation and illness as well as any other excused absence from work, such leave will be considered annual leave for purposes of RCW 41.50.150.))

[Statutory Authority: RCW 41.50.050. 95-16-053, 415-108-010, filed 7/25/95, effective 8/25/95. Statutory Authority: RCW 41.50.050 and Bowles v. Retirement Systems, 121 Wn.2d 52 (1993). 94-11-009, 415-108-010, filed 5/5/94, effective 6/5/94. Statutory Authority: RCW 41.50.050(5) and 41.40.010 (4)(a). 93-11-077, 415-108-010, filed 5/18/93, effective 6/18/93. Statutory Authority: RCW 41.50.050(6) and 41.50.090. 78-03-023 (Order IV), 415-108-010, filed 2/15/78. Formerly WAC 184-01-025, 184-01-035.]

NEW SECTION

WAC 415-108-0110 Reportable compensation--Definition. "Reportable compensation" means compensation earnable as that term is defined in RCW 41.40.010(8).

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NEW SECTION

WAC 415-108-0111 Annual leave--Definition. "Annual leave" means leave provided by an employer for the purpose of taking regularly scheduled work time off with pay. Annual leave does not include leave for illness, personal business if in addition to and different than vacation leave, or other paid time off from work: Provided, however, That if an employer authorizes only one type of leave to provide paid leave for vacation and illness as well as any other excused absence from work, such leave will be considered annual leave for purposes of RCW 41.50.150.

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REPORTABLE COMPENSATION

NEW SECTION

WAC 415-108-441 Purpose and scope of compensation earnable rules. WAC 415-108-443 through 415-108-488 codify the department's existing interpretation of statutes and existing administrative practice regarding classification of payments as compensation earnable in PERS Plan I and PERS Plan II. 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 415-108-443 Reportable compensation table. The following table is provided as a quick reference guide to help you characterize payments under Plan I and Plan II. Be sure to turn to the referenced rule to ensure that you have correctly identified the payment in question. The department determines compensation earnable based upon the nature of the payment, not the name applied to it, see WAC 415-108-445.

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NEW SECTION

WAC 415-108-445 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 compensation earnable in RCW 41.40.010(8).

(1) Payments for personal 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 personal 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, report the payment.

(2) Payments included that are not for personal services rendered. The legislature has included certain specific payments within the definition of compensation earnable even though those payments are not for personal services rendered by the employee to the employer. (See WAC 415-108-464 through 415-108-469.)

(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 reportable 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 compensation earnable.

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 415-108-445 through 415-108-488 define reportable compensation for each of the two PERS plans. "Compensation earnable" is defined in very similar terms for both PERS Plan I and PERS Plan II. The characterization of payments as reportable compensation or not reportable compensation in WAC 415-108-455 through 415-108-488 is the same for both PERS Plan I and PERS Plan II except as specifically noted.

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NEW SECTION

WAC 415-108-451 Salary or wages. Most employees receive a base rate of salary or wages expressed as an hourly or monthly rate of pay. This payment is for services rendered and qualifies as reportable compensation. Two possible components of an employee's base rate are salary considerations based on longevity or educational attainment.

(1) 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 performance due to greater experience or more education. The payment is therefore a payment for personal service and is reportable compensation.

(2) 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 415-108-453 Performance bonuses. Bonuses that are based upon meeting certain performance goals are earned for services rendered and are reportable compensation. If a bonus was earned over a specified period of time it should be prorated for reporting purposes.

Example: An employer pays each employee in the work group an additional $100 if the work group had no work related accidents in the preceding year. Remaining accident free is a performance goal. Therefore the payment is for services rendered and qualifies as reportable compensation. The bonus should be prorated over each of the preceding twelve months during which it was earned.

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NEW SECTION

WAC 415-108-455 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 415-108-475.

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NEW SECTION

WAC 415-108-456 Leave payments earned over time. (1) Sick and annual leave usage. Sick leave and annual 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 accrued. 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 cash outs, like payments for leave usage, are deferred compensation earned for services previously rendered. Whether, and to what extent an annual leave cash out qualifies as reportable compensation depends upon which PERS plan the member belongs to and the type of employer.

(a) Annual leave cash outs are not reportable compensation for PERS Plan II members. Although the payments are for services rendered, they are excluded from the definition of compensation earnable by statute, see RCW 41.40.010 (8)(b).

(b) A cash out of up to thirty days of annual leave for state government employees is reportable compensation for PERS Plan I, see RCW 43.01.040. A cash out in excess of thirty days of annual leave:

(i) Qualifies as reportable compensation if it is authorized by a letter of necessity under RCW 43.01.040. Annual leave qualifies as authorized under a letter of necessity only if the leave was earned after the letter of necessity was issued;

(ii) Does not qualify as reportable compensation if it is earned between the date that the member accrued thirty days of annual leave and the member's anniversary date under RCW 43.01.044.

(c) All annual leave cash outs received by PERS Plan I members who are not state employees qualify as reportable compensation.

(3) Sick leave cash outs. Sick leave cash outs are deferred compensation for services previously rendered.

(a) Sick leave cash outs are excluded from the definition of compensation earnable for PERS Plan II members by statute, see RCW 41.40.010 (8)(b).

(b) Sick leave cash outs are reportable compensation for PERS Plan I members other than state, school district, and educational service district employees.

(c) Sick leave cash outs are excluded from reportable compensation for:

(i) State employees by RCW 41.04.340;

(ii) School district employees by RCW 28A.400.210; and

(iii) Educational service district employees by RCW 28A.310.490.

See RCW 41.40.010 (8)(a).

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NEW SECTION

WAC 415-108-457 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 lieu of reinstatement of a terminated or suspended employee. For treatment of back payments for periods where services were not rendered, see WAC 415-108-467.

(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;

(c) A collective bargaining agreement; or

(d) Action by the personnel resources board which expressly states the payments are retroactive.

(2) The payments will be deemed earned in the period in which the work was done.

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NEW SECTION

WAC 415-108-458 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) or compensation policies in effect at the beginning of a given period of employment specify that a certain amount of severance pay will be earned during that period in consideration for services rendered.

Example: Mr. Jones is a PERS Plan I member employed as a city manager. Since the beginning of his term of employment with the city, 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 PERS Plan I retirement calculation.

To the extent that severance pay qualifies as reportable compensation and is earned within the member's average final compensation period, the severance pay is excess compensation, see RCW 41.50.150.

(2) Plan II. All forms of severance pay are excluded from earnable compensation for Plans II by RCW 41.40.010 (8)(b).

(3) Severance pay that is not earned over time is not earned for services rendered and is not reportable in Plan I or II, see WAC 415-108-488.

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NEW SECTION

WAC 415-108-459 Payroll deductions. Salary or wages for services rendered that are withheld from a member's pay still qualify as reportable compensation.

(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 415-108-475.

(2) Tax withholding. Payments withheld to satisfy federal tax obligations qualify as reportable compensation.

(3) Voluntary deductions. Payments deducted voluntarily, such as I.R.C. section 457 plan contributions or other authorized deductions, are reportable.

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NEW SECTION

WAC 415-108-463 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 which are reportable even though they are not for services rendered.

(1) WAC 415-108-464 through 415-108-469 discuss all payments that are not for services rendered that nonetheless qualify as reportable compensation.

(2) WAC 415-108-475 through 415-108-488 discuss some payments that are not a salary or wage for services rendered and so do not qualify as reportable compensation. A payment not for services rendered other than those identified in WAC 415-108-464 through 415-108-469 is not reportable compensation even if it is not listed in WAC 415-108-475 through 415-108-488.

(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 415-108-464 Legislative leave. If a PERS member takes a leave without pay from an eligible position to serve in the legislature, the member may elect to participate in PERS as a legislator.

(1) Plan I. The salary the employee would have earned from their employer is reportable compensation if the required member contribution is paid by the member and the required employer contribution is paid by the member or the employer.

(2) Plan II. 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 for nonlegislative public employment and the legislative service combined.

If the member selects option (a) of this subsection, 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 415-108-465 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 41.40.175 and 41.40.710 identify payments received from the employer while on paid leave as reportable for PERS. 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 41.40.175 (Plan I) and RCW 41.40.710 (Plan II) and WAC 415-108-466.

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NEW SECTION

WAC 415-108-466 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 41.40.175 (Plan I) or RCW 41.40.710 (Plan II) as appropriate, are met.

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NEW SECTION

WAC 415-108-467 Reinstatement or payment in lieu 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 in lieu of reinstatement, the payments are not earned for services rendered. However, RCW 41.40.010(8) 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.

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NEW SECTION

WAC 415-108-468 Compensation authorized by statute for periods of absence due to sickness or injury. Compensation that a member receives for periods of absence due to sickness or injury are not payments for services rendered unless the payments are authorized pursuant to sick leave earned by the member for services rendered, see WAC 415-108-456. Certain specific types of payments for periods of absence due to sickness or injury have been included within the statutory definition of compensation earnable and therefore qualify as reportable compensation.

(1) Assault pay qualifies as reportable compensation only to the extent authorized by RCW 27.04.100, 72.01.045, and 72.09.240.

(2) Imputed compensation for periods of duty disability that a member would have received but for a disability occurring in the line of duty qualify as reportable compensation only to the extent authorized by RCW 41.40.038.

(3) Shared leave.

(a) Compensation that a state employee receives due to participation in a leave sharing program to the extent authorized by RCW 41.04.650 through 41.04.670 qualifies as reportable compensation.

(b) Shared leave payments received by members who are not state employees, do not qualify as reportable compensation. Such payments are not for services rendered, nor are they specifically included within the statutory definition of compensation earnable.

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NEW SECTION

WAC 415-108-469 Standby pay. Some employers pay employees for being on "standby." A member is on standby when not being paid for time actually worked and the employer requires the member to be prepared to report immediately for work if the need arises, although the need may not arise. Because the member is not actually working, the member is not rendering service. However, RCW 41.40.010(8) specifically identifies standby pay that meets the above requirements as reportable compensation. Although included in the definition of compensation earnable, time spent on standby is excluded from the definition of "service," see RCW 41.40.010(9).

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NEW SECTION

WAC 415-108-475 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 415-108-455) and employer retirement contributions.

Note: Mandatory salary deferrals are salary, not benefits. Such payments are reportable see WAC 415-108-459.

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NEW SECTION

WAC 415-108-477 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 415-108-479 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.

Note: A member may elect to make contributions and receive service credit for periods of disability covered by industrial insurance, see RCW 41.40.038.

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NEW SECTION

WAC 415-108-482 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 fringe benefit, the payment would be illegal and should not be reported.

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NEW SECTION

WAC 415-108-483 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 defer a portion of his or her salary. Because the employee does not have a right to receive the contribution based solely on the rendering of service, the employer payment is not reportable compensation.

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NEW SECTION

WAC 415-108-484 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 415-108-485, or meal and lodging reimbursements for business trips.

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NEW SECTION

WAC 415-108-487 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 city 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 or terminate. Because the payment is in exchange for the agreement to retire or terminate and not for services, the payment is not reportable compensation.

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NEW SECTION

WAC 415-108-488 Severance pay not earned over time--Contract buy outs. 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 employee's termination the employer agrees to pay a lump sum payment equal to two months salary. The employer 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 the retirement calculation.

For treatment of severance pay earned over time, see WAC 415-108-458.

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NEW SECTION

WAC 415-108-491 Salary imputed to periods of unpaid leave. In some circumstances specified in statute, a member may elect to establish service credit for periods of unpaid leave. The salary imputed to a member for purposes of calculating contributions owing for such periods of leave is not reportable compensation. Depending on the type of leave, the imputed compensation may or may not be included as average final compensation in calculating a member's retirement allowance.

(1) Authorized unpaid leave. RCW 41.40.710 provides Plan II members with an option to establish service credit for periods of unpaid leave. RCW 41.40.038 provides members with an option to establish service credit for periods of disability covered by industrial insurance. Salary imputed to members in order to calculate contributions for such periods is not reportable compensation and can not be included as average final compensation in calculating a member's retirement allowance.

(2) Military leave. Salary imputed to a member for purposes of calculating contributions owing for periods of interrupted military service is not reportable compensation. Federal law requires that if a member elects to purchase credit for such periods of military service, and that period falls in the member's average final compensation period, the member is entitled to have the imputed salary he or she would have earned during the period of absence used in the calculation of his or her average final compensation.

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REPEALER

The following sections of the Washington Administrative Code are repealed:

WAC 415-108-450 Compensation earnable for Plan I PERS members.

WAC 415-108-460 Compensation earnable for Plan II PERS members.

WAC 415-108-490 Back pay award or settlement--Definition--Allocated by the department for retirement system purposes.

AMENDATORY SECTION (Amending WSR 97-03-016, filed 1/6/97, effective 2/6/97)

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)) earnable compensation based upon the nature of the payment, not the name applied to it, see WAC 415-112-450.

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[Statutory Authority: RCW 41.50.050. 97-03-016, 415-112-445, filed 1/6/97, effective 2/6/97.]

AMENDATORY SECTION (Amending WSR 97-03-016, filed 1/6/97, effective 2/6/97)

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 TRS Plan I member employed as 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 TRS Plan I 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.

[Statutory Authority: RCW 41.50.050. 97-03-016, 415-112-4608, filed 1/6/97, effective 2/6/97.]

AMENDATORY SECTION (Amending WSR 97-03-016, filed 1/6/97, effective 2/6/97)

WAC 415-112-4609 ((Payments earned by, but not made to a member.)) Payroll deductions. Salary or wages for services rendered that are withheld from a member's pay still qualify as reportable compensation. (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.