Important
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.
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.” Therefore, retroactive pay increases after work has commenced are excluded as creditable compensation for TRS purposes, as they are not paid under a valid contract.
TRS often encounters this when an RE’s board approves raises after the school year has started. Any pay granted for past months must be reported as ‘Total Gross Compensation’ and not as ‘TRS Eligible Compensation.’ However, pay increases from the approval date forward is considered creditable compensation.
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.
Salary Increases and Creditable Compensation
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: