Creditable compensation includes all salary, wages, tips, fees, and qualified transportation expenses paid to all employees. Payments for lump-sum compensatory time are included only for Tier 1 employees.
Lump sum bonuses, severance payments, and employer-provided payments for service credit purchases are considered creditable compensation. These types of payments must be reported separately from regular wages on the monthly detail report. If these types of payments exceed $1,000 for the fiscal year, then the combined payments will be averaged over the employee's total service with the system in which they are reported.
If an employee's compensation package includes non-monetary items, such as employer provided vehicles or housing, the KRS Board of Trustees shall determine the value of these items for purposes of reporting contributions.
What's Not Included
Living allowances, expense reimbursements, and lump-sum payments for accrued unused vacation leave are not considered creditable compensation and should not be reported to KRS. Lump sum payments for unused sick leave when an employee terminates may only be reported to KRS if the agency participates in the Alternate Sick Leave Program. Lump sum payments for unused sick leave at any time other than termination are not reportable. Lump-sum payments for compensatory time are excluded for Tier 2 and Tier 3 employees.
Fiscal Year Limits
Since 1996, the Internal Revenue Code has limited the amount of creditable compensation on which employee and employer contributions are reported. Under these guidelines, employee contributions are to be reported on the monthly detail report for all creditable compensation earned by an employee up to the maximum annual limit. The annual creditable compensation limit for fiscal year 2019-2020 is $280,000. The creditable compensation limit will increase to $285,000 for fiscal year 2020-2021, effective July 1, 2020.
Once an employee reaches the annual limit, no contributions are to be reported for the remainder of the fiscal year. However, the employer must continue to report the employee's creditable compensation for the remainder of the fiscal year using the Salary that Exceeds IRS Limit field on the monthly detail report. If an employer reports contributions in excess of the creditable compensation limit, KRS will refund the excess contributions.