(a) Compensation in excess of the limitations set forth in the Internal Revenue Code of 1986, 26 U.S.C. 401(a)(17), as it existed on January 1, 2011, shall not be used for purposes of calculating final average salary on which benefits under the Arkansas Teacher Retirement System shall be based.

(b)

(1) The limitation on compensation for an eligible employee shall not be less than the amount that was allowed to be taken into account under the system as in effect on July 1, 1993.

(2) As used in subdivision (b)(1) of this section, "eligible employee" means an individual who was a member of the system before the first plan year beginning after December 31, 1995.

(c)

(1) The Board of Trustees of the Arkansas Teacher Retirement System shall set the applicable number of years to be used in computing final average salary for retirement benefits.

(2)

(A) Full service years shall be used in the calculation unless the member has a partial service year that is higher than a full service year.

(B) If the member does not have full service years for the total years of service used in the calculation of final average salary, then the board may establish by rule a fair base year for a member's final average salary for purposes of comparison under subdivision (c)(3) of this section.

(3)

(A) The applicable number of highest salary years shall be ranked from lowest to highest remuneration.

(B) The lowest remuneration year in the ranking shall be the base year.

(C) The next highest ranked remuneration year shall be compared to the base year.

(D) The next highest year's value in the calculation of final average salary shall not exceed the percentage increase of the base year, unless the difference in value between the next-highest year and the base year is within the amount of the salary differential.

(4) After comparison of the base year to the next-highest year, any required reduction to the next-highest year shall be made.

(5) The next highest year, with any required reduction, becomes the new base year to compare to the next succeeding highest remuneration year in the ranking until all years in the ranking have been compared to its base and reduced as necessary under subdivision (c)(3) of this section.

(6) The total value of the base years shall then be averaged to determine final average salary.

(d) If a member has a break in covered employment for eight (8) years or more between any of the member's highest salary years used in the calculation of final average salary, then subdivision (c)(3)(D) of this section shall not apply to the next highest salary year in the formula.

(e) The system may settle any dispute concerning an employee's salary for purposes of the system.

(f) The board may adjust the final average salary calculated in accordance with subsection (c) of this section by board resolution provided that:

(1) The percentage increase under subdivision (c)(3)(D) of this section is adjusted no lower than one hundred five percent (105%) per year and no higher than one hundred twenty percent (120%) per year; and

(2) The salary differential permitted under subdivision (c)(3)(D) of this section is set no lower than one thousand two hundred fifty dollars ($1,250) per year and no higher than five thousand dollars ($5,000) per year.