Is Smp Pensionable

Statutory Maternity Pay (SMP) and its US equivalents—state-paid family and medical leave from programs like California Paid Family Leave (PFL), New York PFL, Massachusetts PFML, and others—are generally not pensionable under most defined benefit and defined contribution plans. The rule: if your plan defines pensionable earnings as compensation for services actually performed, these statutory payments—replacement income for time not worked—are excluded. You must verify your specific plan document because the rule is not universal. The official-source limit: plans can adopt a narrower definition of compensation under IRS Code § 414(s), and many do by explicitly excluding statutory leave payments.

What SMP Means for US Pension Plans – Practical Implication

While SMP is a UK term, the same question applies directly to US workers receiving paid family leave from states with active programs. As of 2025, these include California, New York, New Jersey, Rhode Island, Washington, Massachusetts, Connecticut, Oregon, Colorado, and Hawaii (temporary disability insurance). Each program provides wage replacement during leave for family or medical reasons.

The core IRS rule: under Internal Revenue Code § 414(s), compensation for qualified retirement plans (401(k), 403(b), defined benefit plans) includes wages, salaries, and fees for personal services actually rendered. Statutory leave payments are generally treated as replacement income, not compensation for work performed. Most pension plans mirror this distinction in their own definition of “pensionable earnings.”

Concrete example – California PFL: California’s Paid Family Leave pays a maximum of $1,620 per week in 2025. If you take 8 weeks, you receive $12,960. Under a typical CalPERS plan definition (Government Code § 20636), PFL benefits are excluded from pensionable compensation because they are considered disability insurance benefits, not salary. This same treatment applies to New York PFL (NY Workers’ Compensation Law § 204) and Massachusetts PFML (M.G.L. c. 175M).

Table: State Paid Leave Programs and Typical Pension Treatment

State	Program	Maximum Weekly Benefit (2025)	Typical Pension Treatment
California	Paid Family Leave (PFL)	$1,620	Excluded – treated as disability insurance
New York	Paid Family Leave (PFL)	$1,151.16 (67% of state avg weekly wage)	Excluded – not part of NYSLRS salary base
Massachusetts	PFML	$1,149.90 (as of 2024)	Excluded – defined as replacement income
Washington	PFML	$1,427 (90% of state avg weekly wage)	Excluded – not compensation for service
Colorado	FAMLI	$1,100 (90% of state avg weekly wage, capped)	Excluded – plan definitions typically follow IRS § 414(s)
New Jersey	Family Leave Insurance	$993 (85% of weekly wage)	Excluded – state law separates FLI from pensionable salary
Rhode Island	Temporary Disability/Caregiver	$1,077 (4.62% of base year high quarter wages, capped)	Excluded – treated as TDI, not wages
Connecticut	PFMLA	$900 (60% of state avg weekly wage, capped)	Varies – some state plans include if employer elects; check SPD

Action step: Check your state’s retirement statute or plan document. For CalPERS, see Gov. Code § 20636. For NYSLRS, see Retirement and Social Security Law § 431. For FRS (Florida), see § 121.021(12), which defines compensation to exclude various non-salary payments.

How Exclusion Affects Your Benefit – Worked Example

If SMP or state paid leave is excluded from pensionable earnings, two concrete effects occur:

1. No pension contributions are deducted from those payments – your plan sees $0 for that period.

2. Your final average salary (FAS) used in the benefit formula will be lower than if the payments were counted.

Worked example using a CalPERS-style formula:

• Benefit factor: 2% at age 62
• Service credit: 30 years
• Final average salary (highest 12 months): $80,000 base salary, no PFL inclusion

If you take one 8-week PFL period during that highest-paid year, receiving $12,960 in PFL, and the plan excludes that amount, your pensionable earnings for the year are $80,000 (not $92,960). Without the exclusion, your average monthly salary would be $7,746.67; with exclusion it’s $6,666.67. The difference of $1,080 per month reduces your annual pension by:

2% × 30 × ($1,080) = $648 per year less.

If you have multiple leave periods in your highest-paid years, the impact compounds. For a worker with 20 years of service and a 20% smaller FAS due to repeated exclusions, the annual pension loss grows to several thousand dollars.

Trade-off: The exclusion is usually baked into plan design – you receive no contributions, but your benefit doesn’t get artificially inflated by time off. However, if you are near retirement and expect a large PFL claim, this can meaningfully reduce your lifetime benefit. Plan accordingly.

How to Verify Whether Your Plan Excludes SMP/State Leave

Use this three-step verification process:

1. Find the plan document’s definition of “compensation.”

• For a 401(k) plan: look in the Summary Plan Description (SPD) under “Compensation” or “Eligible Earnings.” Also check the adoption agreement if it’s a pre-approved plan.
• For a government pension: check the state statute (e.g., CalPERS Gov. Code § 20636, NYSLRS RSSL § 431, FRS § 121.021(12)) or the employer’s personnel policies.

2. Search for explicit exclusions.

Common plan language:

> “Compensation does not include any statutory sick pay, maternity pay, paternity pay, adoption pay, or state disability insurance benefits.”

If you see this, SMP/state leave is excluded. If the definition says “W-2 wages” and has no exclusion clauses, inclusion is possible but not guaranteed. Many plans add a separate paragraph that carves out specific payments.

3. Ask the plan administrator directly.

Call or email your HR or pension office with this exact question:

> “Does the plan include state paid family leave benefits in the definition of pensionable earnings? Please cite the specific plan section or statute.”

Verification signal: Log into your pension portal and check your annual benefit statement. If leave payments appear as $0 in the “contributions” or “covered compensation” column, or if the payment shows as “non-pensionable,” your plan excludes them.

Edge case – employer-funded supplemental leave: Some employers offer their own paid parental leave programs (e.g., 6 weeks at full salary) that are funded by the employer directly, not a state trust. These payments are often considered regular wages and may be pensionable even if state statutory payments are not. Ask your HR to distinguish between state-mandated leave and employer-funded leave.

Expert Tips: Avoiding Common Mistakes

Tip 1 – Do not assume W-2 inclusion means pensionability

• Actionable step: Request a written statement from HR explicitly stating whether state paid leave is included or excluded. Keep it for your records.
• Common mistake: Thinking a payment on your W-2 (Box 1) automatically counts toward pensionable compensation. Many plans use a narrower definition (e.g., “base salary only” or “compensation for services performed”) that excludes all statutory payments. W-2 wages include many items (like taxable fringe benefits) that are not pensionable.

Tip 2 – Watch for plan amendments when a new state leave program launches

• Actionable step: Every time your state starts a new paid leave program (e.g., Colorado’s FAMLI in 2024, Massachusetts PFML in 2021, Maryland’s program in 2026), ask your plan administrator if the plan’s compensation definition has been updated to add an exclusion.
• Common mistake: Relying on last year’s rule. Plans can and do update definitions, sometimes retroactively, to clarify that new statutory payments are not pensionable. If you don’t ask, you may incorrectly assume inclusion.

Tip 3 – If you work for a multinational firm, check cross-border treatment

• Actionable step: If you are a US employee of a UK-based company and receive UK SMP (or if you are a UK employee receiving US state leave), ask whether the US plan explicitly addresses foreign statutory payments.
• Common mistake: Assuming the US plan follows UK HMRC rules. US pension plans are governed by ERISA and the IRS Code, which have no direct reference to UK SMP. The plan document will likely say nothing about foreign leave, meaning the default exclusion for “statutory payments” may still apply. You need a definitive answer from the plan administrator.

Decision Aid: Is SMP Pensionable Under Your Plan?

Check each item that applies to your situation:

• [ ] My plan document explicitly lists “statutory maternity/parental leave payments” as excluded from compensation.
• [ ] My plan defines pensionable earnings as “base salary only” (no bonuses, overtime, or leave payments).
• [ ] My plan is a governmental pension (e.g., CalPERS, NYSLRS, FRS, CalSTRS) that by statute excludes state disability or paid leave benefits.
• [ ] My plan uses a “W-2 wages” definition and does not contain any exclusion clauses – this makes inclusion more likely, but not certain. I will still request written confirmation.
• [ ] I have received written confirmation from my plan administrator that SMP/state leave is not pensionable.
• [ ] I have checked my annual benefit statement and see $0 in contributions for the leave period.

Interpretation:

• 3+ checks toward exclusion (items 1–3, 5, or 6): SMP is almost certainly excluded.
• Only item 4 checked: you must dig deeper for hidden exclusions in plan amendments or appendixes.
• 2 checks mixed (e.g., item 4 and item 5 contradictory): contact the administrator for a definitive answer.

Official References

• IRS Code § 414(s) – Defines compensation for qualified retirement plans. Permits plans to adopt a narrower definition than total W-2 wages. See Treas. Reg. § 1.414(s)-1 for details.
• Internal Revenue Bulletin 2014-17 – Clarifies that payments for time not worked (including jury duty, military leave, and statutory leave) are not compensation for services under many plan definitions.
• ERISA § 3(36) – Defines “participant” but defers to plan documents for earnings definitions. No federal law mandates inclusion of state leave.
• CalPERS Government Code § 20636 – Explicitly excludes state disability insurance benefits (including PFL) from pensionable compensation. See also CalPERS Circular Letter 200-020-24.
• NYSLRS Retirement and Social Security Law § 431 – Defines final average salary to exclude lump-sum leave payments and certain other non-salary items.
• Florida Retirement System § 121.021(12) – Defines “compensation” to exclude payments for accrued leave, severance pay, and other non-regular earnings.
• US DOL Advisory Opinion 2005-10A – Clarifies that payments for time not worked (jury duty, military leave) are not compensation for service in many plan contexts.

Note: References are accurate as of 2025. State statutes and plan documents may be updated periodically. Always consult the most current version.

Disclaimer

This article explains general pension rules based on common plan language, IRS guidance, and state statute examples. It does not constitute legal or financial advice. Pension plan definitions vary widely, and your specific plan document, collective bargaining agreement, or state statute may override any general rule. Always verify with your plan administrator or a qualified benefits attorney before acting on this information.

Explore This Topic

• Back to General Pension Faq
• Back to General Pension Faq

Related guides in this cluster:

• Is Pilon Pensionable
• Caterpillar Pension
• Fbi Pension