Creditable Compensation includes all salary, wages, tips, fees, qualified transportation expenses and payments for compensatory time paid to the employee. Lump sum bonuses, severance payments, or employer-provided payments for service credit purchases are also included as creditable compensation for contribution reporting. However, 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 recorded. If an employee’s compensation package includes non-monetary items, such as 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.
Creditable Compensation Limits
The annual creditable compensation limit for fiscal year 2016-2017 is $265,000. The creditable compensation limit will increase to $270,000 for fiscal year 2017-2018, effective 7/1/2017. 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.
Once an employee meets the maximum annual creditable compensation 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. Prior to the beginning of each fiscal year, the retirement office notifies each participating employer of the annual creditable compensation limits.