NYSLRS Final Average Salary Calculation: What Counts, Caps & Tier Rules

The Basic Formula: Highest Consecutive Years

Your Final Average Salary (FAS) — also called Final Average Earnings (FAE) for some tiers — is one of the two numbers that determine your pension. The other is your total credited service. Get the FAS wrong and every monthly check for the rest of your life is off.

NYSLRS calculates FAS by averaging your highest-paid consecutive years of earnings:

• Tier 1: Highest 3 consecutive years, or a 1-year FAS if adopted for the plan
• Tiers 2 through 5: Highest 3 consecutive years (36 months)
• Tier 6: Highest 3 consecutive years (36 months) — reformed from 5 years in April 2024

That Tier 6 change is significant. Before the 2024–2025 state budget reform, Tier 6 members had their FAS calculated using the highest 5 consecutive years (60 months), which typically produced a lower average. The switch to 3 years brought Tier 6 in line with Tiers 2 through 5 and can meaningfully increase the pension benefit for members whose earnings rose in their final years.

The tier rules below describe ERS calculations. PFRS special plans can have separate Final Average Earnings and overtime caps, so confirm the rules for your plan section.

What Counts Toward FAS

NYSLRS includes most forms of regular compensation in the FAS calculation:

• Base salary
• Longevity payments
• Location pay differentials
• Shift differentials paid on a regular schedule
• Holiday pay
• Overtime (subject to caps — see below)

The key principle: compensation that is part of your regular, recurring pay structure generally counts. One-time payments tied to separation from service generally don't.

What's Excluded

These earnings are excluded or limited under tier-specific rules:

• Lump-sum payments for unused vacation or compensatory time at separation
• Termination pay or severance packages
• Retroactive pay increases that cover periods outside your FAS window (though retro pay for periods within the window counts)
• Non-cash compensation and fringe benefits
• Payments for unused sick leave (sick leave converts to service credit under Section 41(j), not to FAS)

Overtime Caps by Tier

Overtime is where FAS calculations get complicated. Each tier has different rules:

ERS Tiers 1 and 2: Generally no statutory overtime cap in the FAS calculation. Tier 1 generally has no statutory earnings growth cap; Tier 2 has a 20% year-over-year limit (see below).

ERS Tiers 3 and 4: No explicit overtime dollar cap, but the year-over-year earnings limit (explained next) effectively constrains how much overtime can influence FAS.

ERS Tier 5: Overtime included in FAS is capped at an indexed annual dollar amount. The research gives about $7,678 as an indexed reference amount; check your Annual Member Statement or Retirement Online for the cap that applies to your retirement year.

ERS Tier 6: Overtime is capped at an indexed annual amount — approximately $18,223 for the 2024–2025 period. This cap is higher than Tier 5's but still prevents large overtime earnings in final years from dramatically inflating the pension.

PFRS Tiers 5 and 6 special plans: Overtime is capped at 15% of annual earnings, and FAE caps range from 10% to 20% depending on the plan.

The Year-Over-Year Earnings Limit

On top of overtime caps, NYSLRS applies an earnings growth limit within your FAS period:

• ERS Tiers 3, 4, 5, and 6: If your earnings in any 12-month period used in the FAS calculation exceed the average of the two preceding years by more than 10%, the excess above 10% is excluded.
• ERS Tier 2: The threshold is 20% instead of 10%.
• ERS Tier 1: Generally no statutory earnings growth cap.

This rule prevents strategic overtime loading in your final year. If you typically earn $80,000 and then rack up $110,000 in your last year through overtime, NYSLRS will cap the countable amount at $88,000 (the prior average plus 10%) for Tiers 3–6.

How to Find Your Highest 3-Year Period

Your highest consecutive 36-month period doesn't have to align with calendar years or fiscal years. NYSLRS examines your entire earnings history and identifies the 36 consecutive months that produce the highest average — whether that runs from March 2023 through February 2026 or any other continuous span.

Log into Retirement Online and request a benefit estimate. The system identifies your optimal FAS period automatically and shows you the calculation. If you believe certain earnings were missed or misreported, your employer's payroll office can submit corrections to NYSLRS.

One planning point worth noting: if you're within three years of retirement and considering a promotion, lateral transfer, or shift change that would increase your earnings, the timing matters. The higher pay needs to fall within your eventual FAS window to affect your pension. Starting a higher-paying position six months before retirement captures only six months of higher earnings in the 36-month average.

The 2024 Tier 6 Reform in Practice

Before April 2024, Tier 6 members had to average their highest 5 years, and earnings in any year couldn't exceed the prior four-year average by more than 10%. The reform compressed both: 3-year average, and 10% cap measured against the prior two years.

The effect of the switch from 5 years to 3 years depends on your earnings history and the applicable caps. Request an updated NYSLRS estimate to see how the reform changes your benefit.

If you're a Tier 6 member who ran a benefit estimate before April 2024, request a new one. The old estimate used the 5-year formula and underestimates your actual benefit under current law.

The NYSLRS Retirement Guide breaks down FAS rules for each tier side by side and walks through a worked example showing how overtime caps and the year-over-year limit interact for a typical final-year earnings scenario.

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