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The Impact of Reduced Salary on Benefits

Jun 9, 2020, 10:17 AM by MOSERS
Assuming someone is nearing retirement and their salary is at its highest point to date, would there be any difference between a salary reduction or a furlough in terms of how it impacts FAP or MOSERS benefits? And would it make a difference if furloughed employees were allowed to use FMLA or other accrued leave to cover furloughed days?

The impact of a salary reduction or furlough/layoff without pay on retirement benefits depends on the employee’s individual pay history and their service credit relative to retirement eligibility. FAP refers to final average pay and it is one part of the 3-part formula used in calculating retirement benefits:

FAP x Multiplier x Credited Service = Monthly pension benefit payment

FAP is calculated from the employee’s highest 36-consecutive months of pay, not necessarily their last 36 months of pay. See some FAP calculation examples that illustrate the impact of a salary reduction or a furlough/layoff without pay on FAP and monthly pension benefits. A furlough/layoff without pay may also delay eligibility for retirement since the employee would not be earning service credit.

You should discuss using annual leave or FMLA leave with your Human Resources staff. If you go on paid leave at your current salary or unpaid FMLA leave due to your own illness, it would have no impact on your pension benefits. Payment for unused annual leave, unused sick leave or any other one-time payouts are not considered pay for retirement purposes and are not included in an employee’s highest 36-consecutive months of pay.

If you are close to retirement, we encourage you to contact a MOSERS benefit counselor to discuss your individual situation and options.

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