Definition of IPERS-covered wages
SF2424 changes the definition of IPERS-covered wages. The definition is important because contributions and benefit calculations are based on IPERS-covered wages. The change affects contributions paid by current public employees and may affect the final average salary used to calculate their future retirement benefits. However, the change does not affect the benefits that you are already receiving.
The new law removes bonuses and allowances from the definition of IPERS-covered wages.
Not included in IPERS-covered wages:
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Bonuses, whether paid as a one-time lump sum or in installments.
Bonuses do not reflect a normal progression of wages that typically occurs throughout a career. Successfully funding a retirement plan requires that employees and their employers contribute a percentage of wages that increase incrementally throughout employees’ careers. When bonuses inflate the final average salary used to calculate pensions, the pensions are out of proportion to the contributions paid while those employees were working. Even when members do not seek bonuses just to inflate their pensions, bonuses received in the few years before retirement can result in pensions that are higher than they should be for the contributions paid throughout a career.
Bonuses include recruitment and retention incentives, and awards for performance, but do not include overtime. IPERS will work with employers to make sure that employers correctly report special appropriations meant to improve salaries rather than give bonuses.
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Allowances, except legislative pay.
Few allowances were part of IPERS-covered wages in the past. However, the language in the law had caused confusion and led to errors when employers reported wages to IPERS. The law now states more clearly that covered wages do not include allowances.
Effective July 1, 2008
Iowa Code Section Amended: 97B.1A(26)
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