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Overtime Pay Temporarily Excluded From Tier 6 Contribution Rates

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April 2022 legislation temporarily changes how Tier 6 contribution rates are calculated.

As a Tier 6 member, your contribution rate is based on your past earnings and can change from year to year. Usually, Tier 6 contribution rates are calculated using a member’s base pay, which includes regular earnings, holiday pay and longevity pay. Overtime pay (up to a certain limit) is also included in the calculation of the contribution rate.

The legislation removes overtime earned from April 1, 2020 through March 31, 2022 from the Tier 6 contribution rate calculation. For some Tier 6 members, this has resulted in lower contribution rates for up to two years. The lower rates affect earnings that are being paid from April 1, 2022 through March 31, 2024.

Although overtime is temporarily removed from the calculation of Tier 6 contribution rates, your contribution rate is still applied to all your pensionable earnings, including overtime. 

Our video Understanding Your Tier 6 Contributions helps explain how your contribution rate is determined.

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Who is Affected by the Rate Change?

The temporary exclusion of overtime affects Tier 6 members who:

  • Earned overtime from April 1, 2020 through March 31, 2022; and
  • Make mandatory contributions toward their retirement (most Tier 6 members do).

The rate decrease does not apply to:

  • Members who are already paying the minimum rate of 3 percent;
  • Members who did not earn overtime during the COVID pandemic; and
  • New members whose rate is based on an estimated wage rather than actual earnings.

If you are a Tier 6 member who is affected by the legislation, we worked with employers to review your past earnings and to determine whether your rate should be lowered. Members who should have contributed at a lower rate beginning April 1, 2022 received a refund. The rate that will be applied to your earnings from April 1, 2023 to March 31, 2024 already takes the legislation into account.

Tier 6 FAS Limits (ERS)

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First, a year of earnings in the FAS period can’t exceed the average of the previous four year’s earnings by more than 10 percent. Anything beyond that will not be included in the pension calculation.

Additionally, several types of payments will not be part of the FAS calculation for ERS Tier 6 members:

  • Lump-sum vacation pay,
  • Wages from more than two employers,
  • Payment for unused sick leave,
  • Payments for working during a vacation,
  • Any payments that cause your annual salary to exceed that of the Governor (currently $179,000),
  • Termination pay,
  • Payments made in anticipation of retirement,
  • Lump-sum payments for deferred compensation and
  • Any payments made for time not worked.

Generally speaking, here’s what an ERS Tier 6 FAS will include: regular salary, holiday pay, overtime pay (regular and noncompensatory) earned in the FAS period and up to one longevity payment per year, if earned in the FAS period.

Overtime Limits

While overtime pay generally is part of an ERS Tier 6 FAS, the amount that can be included is limited. The limit is adjusted for inflation each year based on the change in the Consumer Price Index over the one-year period ending September 30 of the previous year. Under a new law, beginning January 1, 2018, the Tier 6 limit will be updated on a calendar year basis instead of on a fiscal year basis.

The 2018 calendar year overtime limit for Tier 6 members is $16,406.

For more information about the Tier 6 FAS, find your retirement plan booklet on our Publications page, or check out our Final Average Salary and Overtime Limits for Tier 6 pages.