Corrective Payments vs. Retroactive Salary Increases

When a member is underpaid in a prior school year, or school years, and the employer issues a lump sum payment to correct the error in an amount equal to the additional amount the member should have received in previous months, the corrective payment is creditable for TRS purposes, provided the underlying compensation is creditable. 

• Beginning with the 2015-16 school year, the payment must be reported and credited as compensation for the report month in which the lump sum was paid to the employee, rather than the month(s) it should have been paid. See Rule 25.46(b). 
• For example, if an employer discovers that a member was paid under the wrong salary step for prior school years then corrects the error in the following school year by including in one of the member’s monthly salaries the total compensation due to correct the underpayment, this corrective payment would be eligible compensation provided the underlying compensation was creditable. 
  • However, based on the compensation limits described in Rule 25.31, the total annual salary may be adjusted by TRS if the salary exceeds the allowable compensation limit of no more than the greater of $10,000 or 10% increase in compensation in the final years before retirement.

Article III, Section 53 of the Texas Constitution prohibits the grant of “extra compensation, fee or allowance to a public officer, agent, servant or contractor, after service has been rendered, or a contract has been entered into, or performed in whole or in part.” For this reason, a pay increase given retroactively after work has commenced under the contract or work agreement, is excluded as creditable compensation for TRS purposes. Examples of retroactive payments* include:

• Granting a pay increase after performance under the contract has commenced and then retroactively paying the increase to the beginning of the contract in a lump sum and applying the increase to future payments. Here, the retroactive payment is the lump sum “catch-up” payment for prior months and that payment is not creditable for TRS purposes. However, the increase going forward would be creditable. 
• Granting a pay increase after performance under the contract has commenced and then increasing the remaining payments under the contract to an amount needed to ensure that the annual increase is received by the end of the contract. In this example the amount of the increase in future payments under the contract that represents the “catch-up” amounts are excluded but the prorated share of the annual increase for the remainder of the contract year is creditable, i.e., 1/12 of the increase for each of the remaining months of the contract is creditable. If you have a situation where you are questioning if the compensation should be creditable, please review our website regarding creditable compensation or reach out to your coach for assistance.