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REGULAR COMPENSATION GUIDELINES
Introduction The Middlesex County Retirement Board is pleased to provide this update of the current status of the law applicable to regular compensation. Chapter 21 of the Acts of 2009 restricted the definition of regular compensation as of July 1, 2009, to “wages,” further defined as “base salary or other base compensation.” On June 17, 2010, after extended review and debate as to the Legislature’s intent, PERAC issued Memorandum #24/2010, below, which presented amendments to 840 CMR 15.03 - Regular Compensation. As is to be expected in this complicated area of the public employee retirement law, issues and concerns regarding the application of the law to regular compensation continue to arise. Further, judicial decisions significantly impact regular compensation, most recently in the area of clothing allowances, separately addressed below. If you have specific questions regarding payments made by your governmental unit, kindly bring them to the Board for determination. Payments Continuing as Regular Compensation -Longevity -Educational Incentives (including payments for training, holding licenses and certifications,) -Shift Differentials -On Call or Standby Pay -Hazardous Duty Pay Payments Excluded From Regular Compensation Payments excluded from regular compensation include those payments expressly set forth in Chapter 21of the Acts of 2009. Many of these were previously excluded in the prior definitions of regular compensation. Significant exclusions include clothing allowances, payments for annuities and insurance premiums, automobile usage and travel, and housing. -Clothing and Uniform Allowances (including other similar payments, such as cleaning, boot or tool allowances) -Annuities (e.g., employer’s contribution to a deferred compensation plan, a 401K or 403B plan) -Housing and Lodging (also known as “non-cash maintenance”) -Overtime (i.e., payment for services rendered beyond the member’s normal work hours) -Commissions and Bonuses (e.g., payments based upon performance) -Amounts Derived from Salary Enhancements or Augmentation Plans (e.g., “enhanced longevity”) -Travel (including payments made as part of the member’s regular salary) -Welfare Benefits Section 23 of Chapter 21 of the Acts of 2009, provided in pertinent part, that, “any… payment included in the definition of ‘regular compensation’ by law or by regulation prior to the effective date of this act and included in any applicable collective bargaining agreement or individual contract for employment in effect on May 1, 2009, shall continue to be included in the definition of “regular compensation” during the term of that collective bargaining agreement or contract; provided, however, that any such amount, benefit or payment received after June 30, 2012 shall not be considered regular compensation. However, in February of 2010, in the case of O'Brien v. CRAB, 76 Mass. App. Ct. 901 (2010), the Massachusetts Appeals Court ruled that uniform allowances were not (and never were) regular compensation. No grandfathering clause was included in the Court’s decision. With the daunting prospect of retirement boards’ being required to recalculate thousands of retirement allowances and to seek to collect overpayments of benefits, the Legislature acted to include an outside section of the state budget, Chapter 131 of the Acts of 2010, effective July 1, 2010, which reinstated the language of Chapter 21 regarding the exclusion of clothing allowances as regular compensation. The section further prohibited the reduction of existing retirement allowances which had included payments for clothing allowances. On October 22, 2010, the Supreme Judicial Court ruled in Boston Hous. Auth. v. Nat’l Conference of Firemen and Oilers, Local 3, No. SJC-10569 that collective bargaining contract extension provisions, or so-called “evergreen clauses” which allow the parties to continue to act under the terms of an expired contract, were invalid. The effect of this decision was to exclude clothing allowances from regular compensation if a contract had expired prior to May 1, 2009, but was considered by the parties to continue in effect due to the existence of an extension provision. In addition, clothing allowances paid under contracts which had expired after July 1, 2009, but were subject to an evergreen clause could no longer regular compensation. Legislation has been filed to address the SJC’s decision on the invalidity of evergreen clauses, and PERAC has advised retirement boards to wait for further guidance on this matter. Regular Compensation and the “Under $5000 Rule” Chapter 21 of the Acts of 2009 amended section G.L. c. 32, § 4(1)(o), so as to deny creditable service after July 1, 2009 to a member whose annual compensation is less than $5,000: “the service of a state, county or municipal employee employed or elected in a position receiving compensation of less than $5,000 annually, which service occurs on or after July 1, 2009, shall not constitute creditable service…” Such members who were serving in an elected or appointed term or under a contact for a specific period, would continue to accrue until the end of the term or contract period. Nevertheless, with respect to existing members who are earning less than $5000 per year, payment for services continue to represent regular compensation, and deductions must continue to be taken, as such individuals continue to be “members in service” under § 3(1). Pursuant to § 22(1), the disbursing payroll officer “shall” withhold a percentage of the regular compensation of each employee who is a “member in service.” Retirement rights, such as accidental and ordinary disability and the right to purchase prior service, remain unchanged as these individuals are “members in service.” As the law regarding these important matters continues to evolve, the Middlesex County Retirement Office will provide periodic updates to our members and member units. PERAC FROM: Joseph E. Connarton, Executive Director RE: 840 CMR 15.03 Amendments to Regulations Regarding Regular Compensation DATE: June 17, 2010 Attached is a copy of 840 CMR 15.03, PERAC’s regulation defining “regular compensation”. This regulation was the subject of several public hearings. After the hearings and public comment period it was further refined by the Commission and filed with the Legislature as required by G.L. c. 7, § 50. The final regulation was published in the State Register and became effective on May 28, 2010. Earlier versions of the regulation must be disregarded. In determining whether payments on or after July 1, 2009 are “regular compensation” for purposes of Chapter 32, Retirement Boards must consider the criteria contained in 840 CMR 15.03(3)(b). Generally the considerations are whether the payments are:
After considering these factors, the payments must be compared with the specific exclusions contained in G.L. c. 32, § 1 and 840 CMR 15.03(3). With the exception of clothing allowances, those items that are specifically excluded are not to be considered to be regular compensation. Excluded items, however, may be considered regular compensation through the end of an existing collective bargaining agreement or employment contract in effect on May 1, 2009 but not later than June 30, 2012. Please refer to PERAC Memo #24/2009 for such excluded items. All determinations regarding clothing allowances should be delayed pending possible legislative action that may impact the exclusion of these payments from the definition of “regular compensation.” Clothing allowances contained in such agreements or contracts may continue as regular compensation for the above mentioned periods upon passage of this legislative action. PERAC will be providing additional guidance as the implementation of the regulation and of the decision in O’Brien v. CRAB & another, 76 Mass. App. Ct. 901 (2010) continues. If you have questions, please contact this office. 840 CMR 15.03 15.03: Regular Compensation (1) During any period of active service prior to July 1, 2009 the term "regular compensation" as defined by M.G.L. c. 32, § 1, shall be determined subject to the following: (a) To be considered regular compensation, any compensation to an employee i) have been actually paid to or on behalf of a member: ii) be made as remuneration for services actually rendered, for recurring payments for accrued sick leave, or for payments made pursuant to G.L. c. 41, § 111F in the year or part of a year to which the compensation is attributed; iii) be ordinary, normal, recurrent, repeated, and of indefinite duration: iv) be made pursuant to an official written policy of the employer or to a collective bargaining agreement; v) be made on a non-discriminatory basis and be generally available for employees who are similarly situated relative to the purpose of the payment (e.g. a longevity payment made recurrently to all employees in a bargaining unit having attained a specific length of service) provided that the ability of a payment to be denied due to merit shall not exclude it for that reason from regular compensation. (b) Regular compensation shall include any part of such salary, wages, or other (c) Lump-sum or retroactive payments which would have been regular compensation if paid in the periods in which the services remunerated thereby were actually rendered will be allocated to said periods rather than being entirely attributed to the time of receipt for the purpose of determining a member’s regular compensation. (d) Provided they meet the general criteria in 840 CMR 15.03(1)(a)-(c), payments i) a member’s annual rate of compensation as provided in an approved salary schedule; ii)any non-cash maintenance allowances in the form of full or partial boarding and housing, as provided in M. G.L. c. 32,§ 22(1)(c); iii) Any premiums paid by any governmental unit for the purchase of an individual or group annuity contract as authorized by M.G.L. c. 15, § 18A or by M.G.L. c. 71, § 37B; iv)any amounts paid as educational incentives; v)any amounts paid for length of service; vi)any amounts paid as premiums for shift differentials; and vii)any amounts paid as cost-of-living bonuses or cost-of-living pay adjustments. (2) During any period of active service prior to July 1, 2009, any extraordinary or ad a) any amounts paid for hours worked beyond the member's normal work schedule; (b) any amounts paid as premiums for working holidays, except as authorized by law; (c) any amounts paid as bonuses other than cost-of-living bonuses, provided that any payment to
an employee or group of employees which will not recur or which will recur for only a
limited or definite term will be considered a bonus, and further provided that any payments
to an employee or group of employees as part of a salary augmentation plan or salary
enhancement program which is provided for in an individual contract in effect on or before
January 25, 2006 or in a collective bargaining agreement in effect on or before January 25,
2006, including payments under such a plan or program which will not recur or which will
recur for only a limited or definite term, shall be treated as regular compensation; and
further provided, that any employee who is covered by such an agreement or contract on
January 25, 2006 and who begins, at any time during the life of a collective bargaining (d) any amounts paid in lieu of or for unused vacation, sick leave, or other leave; (e) severance pay; (f) any amounts paid as early retirement incentives; and (g) Any other payments made as a result of the member giving notice of retirement. (3)During any period of active service subsequent to July 1, 2009 the term “Regular Compensation”, as defined by M.G.L. c.32, § 1, shall be determined subject to the following: (a) to be considered regular compensation, any compensation to an employee must be (b) “wages" shall mean the base salary or other base compensation of an employee paid to that
employee for employment by an employer including pre-determined, non-discretionary, (c) Any amount, benefit or payment included in the definition of “regular compensation” by law
or by regulation prior to July 1, 2009 and included in any applicable collective bargaining (d) Regular compensation shall include any part of the wages derived from federal grants except as provided in M.G.L. c. 32 § 3(2)(a)(xi); (e) Lump-sum retroactive payments which would have been wages if paid in the periods in which the services remunerated thereby were actually rendered will be allocated to said periods rather than being entirely attributed to the time of receipt for the purpose of determining a member’s regular compensation; (f) “wages” shall not include, without limitation, overtime, commissions, bonuses other than costof-
living bonuses, amounts derived from salary enhancements or salary augmentation plans
which will recur for a limited or definite term, indirect, in-kind or other payments for such
items as housing, lodging, travel, clothing allowances, annuities, welfare benefits, lump
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Middlesex County Retirement Board
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(978) 439-3000 or (800) 258-3805
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