TRS recognizes that during a legislative year, some reporting employers (REs) may experience difficulty finalizing budgets until after employment agreements have been executed for the upcoming school year.
Please keep in mind that for the purpose of determining whether a person's salary is creditable for TRS purposes, retroactive salary increases are generally not creditable compensation for TRS benefit calculation purposes.
If an RE executes employment agreements and employees begin work under those agreements prior to the salary increases being finally determined and incorporated into the agreements, an RE should do the following to minimize the risk that the salary increases provided will be excluded from employees' creditable compensation:
Identify, Verify and Finalize Salary Increases
Make a good faith effort to estimate the amount of the anticipated salary increase and minimize the discretion the school board may exercise in determining the amount of the salary increase after work commences. For example:
- Identify the percentage of the additional funding that will be allocated toward salary increases for individual employees or individual classes of employees. As a result, the only variable remaining to calculate the amount of the salary increase for each employee or class of employee is the amount of the increase in the RE’s funding; or
- Estimate the percentage increase of each employee’s salary. Consider including that figure in the employment agreement and qualify it by stating the amount of the salary increase may change when the increase in funding to the RE is finally determined.
Ensure the employees’ entitlement to the additional compensation arising from the salary increase is earned regularly over time in proportion to the amount of work performed.
Make every effort to finalize the employees’ salary increases as soon as possible.
Retroactive Salary Increase vs "Delayed Payment"
A retroactive salary increase does not qualify as a “delayed payment of a lump-sum amount” as described in the TRS rules, because a delayed payment is compensation that the employee was legally entitled to at that time the work was performed. In contrast, a retroactive salary increase entitles an employee to extra compensation for work that has already been performed and for which the employee has already been compensated.
Important
Please note, while TRS provides guidance to REs regarding creditable compensation, a final determination of each TRS member’s creditable compensation is made based on Texas law, the TRS rules, and the specific facts and circumstances relating to the compensation received by each member.