(b) This subsection applies to a member who retires after December 31, 2027. This subsection does not apply to a teacher member described in subsection (d) or (e). Except as provided in subsection (h), in computing the retirement benefit for a nonteacher member, "average of the annual compensation" means average annual compensation calculated using the greater of the following:

1. (1) The five (5) calendar years of service before retirement in which the member's annual compensation for the calendar year was the highest.
2. (2) The five (5) fiscal years of service before retirement in which the member's annual compensation for the fiscal year was the highest.

(c) The following apply to the calculation under subsection (b):

1. (1) A year does not qualify for inclusion in the calculation unless:

   1. (A) the year is equal to twelve (12) months; and
   2. (B) the member received creditable service for at least six (6) months throughout the year.
2. (2) A calendar year begins on January 1.
3. (3) A fiscal year begins on July 1.
4. (4) The five (5) years need not be continuous.

(f) Subject to IC 5-10.2-2-1.5 , "annual compensation" means:

1. (1) the basic salary earned by and paid to the member plus the amount that would have been part of that salary but for:

   1. (A) the state's, a school corporation's, a participating political subdivision's, or a state educational institution's paying the member's contribution to the fund for the member; or
   2. (B) the member's salary reduction agreement established under Section 125, 403(b), or 457 of the Internal Revenue Code; and

2. (2) in the case of a member described in subsection (e) and for years of service to which IC 5-10.4-5-7 does not apply, the basic salary that was not paid during the year but would have been paid to the member during the year under the member's employment contracts, if the member had not taken any unpaid leave of absence to serve in an elected position.

   The portion of a back pay award or a similar award that the board determines is compensation under an agreement or under a judicial or an administrative proceeding shall be allocated by the board among the years the member earned or should have earned the compensation. Only that portion of the award allocated to the year the award is made is considered to have been earned during the year the award was made. Interest on an award is not considered annual compensation for any year.

(g) This subsection applies to a member who retires before January 1, 2028. Compensation of not more than two thousand dollars ($2,000) received from the employer in contemplation of the member's retirement, including severance pay, termination pay, retirement bonus, or commutation of unused sick leave or personal leave, may be included in the total annual compensation from which the average of the annual compensation is determined, if it is received:

1. (1) before the member ceases service; or
2. (2) within twelve (12) months after the member ceases service.

(h) This subsection applies to a member of the general assembly:

1. (1) who is a participant in the legislators' retirement system established under IC 2-3.5 ;
2. (2) who is also a member of the public employees' retirement fund or the Indiana state teachers' retirement fund; and

3. (3) whose years of service in the general assembly may not be considered in determining the average of the annual compensation under this section, as provided in IC 2-3.5-1-2 (b)(2) or IC 2-3.5-3-1 (c).

   The board shall use the board's actuarial salary increase assumption to project the salary for any previous year needed to determine the average of the annual compensation.

   As added by Acts 1977, P.L.53, SEC.2. Amended by P.L.28-1984, SEC.2; P.L.35-1985, SEC.13; P.L.55-1989, SEC.17; P.L.6-1989, SEC.2; P.L.4-1990, SEC.8; P.L.10-1993, SEC.4; P.L.95-2004, SEC.2; P.L.2-2006, SEC.24; P.L.2-2007, SEC.93; P.L.104-2026, SEC.9.