1. (a) The contributions required from a member to the Teacher Retirement System of Texas are generally based upon the member's annual compensation. Benefits paid by the retirement system are also generally based in whole or in part upon the annual compensation credited to a member for certain school years. A member's annual compensation for any particular school year has the meaning given by the law and rules applicable for that year. Beginning with the 1981-1982 school year, and for school years thereafter, annual compensation consists of the salary and wages that are paid or payable to a member for employment which is eligible for membership in the retirement system during that school year.

2. (b) Some payments made by an employer to a member are not salary or wages, even though the payments may be otherwise considered as compensation under the employment contract or federal tax laws. In general salary and wages creditable and subject to deposit are those types of monetary compensation which:

   1. (1) are earned or accrue proportionally as the work is performed, so that a member terminating employment between pay periods is entitled to a proportional amount of the compensation based on either length of employment or amount of work performed;
   2. (2) are paid or payable at fixed intervals, generally at the end of each pay period; and
   3. (3) are not specifically excluded under subsection (d) of this section.

3. (c) The following types of monetary compensation are to be included in annual compensation:

   1. (1) amounts deducted from regular pay for the state-deferred compensation program, for a tax-sheltered annuity, or for a deferred compensation arrangement qualifying under the United States Internal Revenue Code, §401(k);
   2. (2) normal payroll deductions which are not tax-exempt or tax-deferred;
   3. (3) additional compensation paid for additional duties, for longevity, for overtime worked as required by law, or for service in a particular location or specialty, provided that these payments clearly meet the requirements of subsection (b) of this section;
   4. (4) delayed payments of lump-sum amounts which by law or contract should have been paid at fixed intervals and which otherwise meet the requirements of subsection (b) of this section; and
   5. (5) amounts withheld from regular pay under a cafeteria plan as provided by §25.22 of this title (relating to Contributions to Cafeteria Plans and Deferred Compensation);
   6. (6) performance pay provided it meets the requirements of the Texas Government Code §822.201(b)(4) and §25.24 of this chapter (relating to Performance Pay);
   7. (7) a merit salary increase made under Education Code, §51.962; and
   8. (8) amounts deducted from regular pay for a qualified transportation benefit under Government Code §659.202.

4. (d) The following are excluded from annual compensation:

   1. (1) allowances, including housing, car, and expense allowances;
   2. (2) reimbursements for expenses;
   3. (3) payments for accrued sick leave or vacation, except that continued payments of normal compensation when vacation or sick leave is actually taken by an employee will be included in annual compensation to the extent otherwise permitted by this section;
   4. (4) benefits, except as provided in subsection (c)(1) of this section, which either are not subject to federal income tax or which will be subject to federal income tax in a future year;
   5. (5) bonus payments which are not included in the contract of employment and for which the employer receives no additional consideration or value;
   6. (6) employer payments for fringe benefits, including direct cash payments in lieu of fringe benefits, except as provided in §25.22 of this title (relating to Contributions to Cafeteria Plans and Deferred Compensation);
   7. (7) payments, except as provided in subsection (c)(1), (c)(2), (c)(5), and (c)(8) of this section, made to third parties for the benefit of a member;
   8. (8) payments for work as an independent contractor or consultant;
   9. (9) all nonmonetary compensation;
   10. (10) active employee health coverage or compensation supplementation received by an employee under Article 3.50-8, Insurance Code, regardless of whether the employee receives the amount in cash, uses it for payment of health care coverage, or uses it for any other option available by law; and
   11. (11) any other fringe benefit.
5. (e) The maximum amount of compensation of any member that may be taken into account under the retirement system shall not exceed $150,000 for plan years commencing on or after September 1, 1996. For plan years commencing on or after January 1, 2002, the maximum amount of compensation shall not exceed the limit contained in the Internal Revenue Code §401(a)(17)(A), 26 United States Code §401(a)(17)(A). For plan years beginning before January 1, 1997, in determining the compensation of any member for any year, the family aggregation rules of the Internal Revenue Code, §414(q)(6), 26 United States Code §414(q)(6) shall apply except the term "family" shall include only the spouse of the member and any lineal descendants of the member who have not attained age 19 before the end of the year. The limits set forth in the first two sentences of this subsection shall be increased from time to time, to reflect cost of living increases, in accordance with the Internal Revenue Code, §401(a)(17), 26 United States Code §401(a)(17). The dollar limitation prescribed in the first two sentences of this subsection shall not apply to limit the compensation of any person who first becomes a member before September 1, 1996. Furthermore, that limitation shall not apply for any period during which such limitation is repealed or is not enforced by the Internal Revenue Service with regard to governmental plans.

Source Note:The provisions of this §25.21 adopted to be effective September 26, 1979, 4 TexReg 3303; amended to be effective September 4, 1981, 6 TexReg 3097; amended to be effective December 4, 1985, 10 TexReg 4534; amended to be effective September 1, 1989, 14 TexReg 4133; amended to be effective June 1, 1995, 20 TexReg 3733; amended to be effective March 12, 2003, 28 TexReg 2094.