Average Final Compensation
Average Final Compensation (AFC) is the average of the member’s highest-paid years of membership service, determined by whether a member was vested prior to January 1, 2012.
For members vested prior to January 1, 2012, AFC is based on the highest three years of Earnable Compensation and may be subject to statutory limitations.
For members not vested prior to January 1, 2012, or hired on or after July 1, 2011, AFC is based on the highest five years of Earnable Compensation and may be subject to statutory limitations.
For benefit calculation purposes, a member’s final 12 months of Earnable Compensation is limited. The limit is 150% of the member’s Earnable Compensation for the preceding 12 months or the higher Earnable Compensation for any year used in calculating the member’s AFC, excluding the member’s final 12 months. If the member exceeds the 150% limit and it is determined that the member is not eligible for grandfathered credits for any unused earned time accrued prior to June 30, 1991, NHRS will notify the member.
Members must receive all compensation that is subject to NHRS contributions no later than 120 days after their termination of employment from their NHRS-covered position. Any compensation paid to members beyond the 120-day period will not be included in their benefit calculation. (There may be an exception when it is established that the delay in payment was through no fault of the member and the member was vested prior to January 1, 2012).
Compensation over Base Pay
Since January 1, 2012, employers have been required to report Earnable Compensation as either "base pay” or "compensation over base" (COB) for all Group I and Group II members not vested prior to that date. COB includes, but is not limited to, overtime, shift differentials, stipends, and longevity pay.
Under changes to the definition of AFC made in 2011, the percentage of COB used in the AFC calculation for members who were not vested prior to January 1, 2012, is the lesser of the percentage of COB in the high 5 years of Earnable Compensation or the percentage of COB in the remainder of the member's career, excluding the high 5 years.
Sample Group II AFC calculation:
- Total AFC (highest 5 years): $60,000
- Base Pay (average in highest 5 years): $50,000
- Comp Over Base (COB) (average in highest 5 years): $10,000
- % of COB to Base Pay in highest 5 years: 20% ($10,000 divided by $50,000 equals 20%)
Here’s what happens to the AFC under different scenarios based on what the percentage of COB to Base Pay was in the remainder of the career:
- If “rest of career” percentage is 20% or more: No change. AFC stays at $60,000
- If “rest of career” percentage is 15%: COB allowed in high five is $7,500 ($7,500 divided by $50,000 equals 15%). AFC is $57,500
- If “rest of career” percentage is 5%: COB allowed in high five is $2,500 ($2,500 divided by $50,000 equals 5%). AFC is $52,500
Extra or Special Duty Pay for Group II Members
Group II members vested prior to January 1, 2012: When calculating AFC, the law states that the average annual compensation for extra or special duty pay (ESDP) in the member’s highest 3 years shall not exceed the average annual amount of compensation for ESDP paid to the member over the member's last 7 years of creditable service. If the last 7-year average is lower than the average in the high 3, NHRS must use the 7-year average in the AFC calculation.
Group II members in service prior to July 1, 2011 but not vested prior to January 1, 2012: For these members, ESDP is part of the “compensation over base” calculation used as part of their AFC calculation. (see above)
Group II members hired on or after July 1, 2011: ESDP is not Earnable Compensation for retirement purposes; neither the member nor the employer pay NHRS contributions.
Maximum Retirement Benefit
For members hired on/after July 1, 2009, and not vested prior to January 1, 2012, the maximum benefit is the lesser of $120,000 or 85% of AFC.
For members hired prior to July 1, 2009, the maximum benefit is no more than 100% of the member's highest year of Earnable Compensation.