Sec. 1. 5 MRSA §17001, sub-§13, śC, as repealed and replaced by PL 1995, c. 274, §1, is amended to read:

C. Notwithstanding the other provisions of this subsection, for the purposes of determining average final compensation, "earnable compensation" does not include any increase that exceeds the prior year's earnable compensation by more than 5% or that results in a total increase of more than 10% during the 3-year period used in the calculation of average final compensation, unless the cost of the additional actuarial liability arising from the excess increase is paid by the employer as provided in section 17154. In calculating the limit on earnable compensation imposed by this paragraph, the retirement system shall use the member's 4th highest year of earnable compensation as the base year regardless of when that year occurred. Any payment made under paragraph B, subparagraph (1) must be included in determining the amount of increase in the year in which the payment is made. This paragraph does not apply to excess increases resulting from compensation paid prior to July 1, 1993, from compensation paid in accordance with an individual employment contract executed prior to July 1, 1993 or a collective bargaining agreement executed or ratified in its final form by final vote of one party to the agreement prior to July 1, 1993 for the initial term of that contract or agreement or from other action by the governing body of a school administrative unit in effect on July 1, 1993. This paragraph does not apply to increases in compensation of state employees during fiscal year 1993-94 and fiscal year 1994-95. In all circumstances in which this paragraph does not apply to earnable compensation of state employees and teachers, the provisions of this paragraph that were in effect prior to June 30, 1993 apply. This paragraph does not apply to earnable compensation of employees of participating local districts.

Sec. 2. 5 MRSA §17804, sub-§5-A is enacted to read:

5-A.__Benefit recalculation under optional methods of payment when beneficiary predeceases retiree.__The benefit of a qualifying member who exercises any of the service retirement benefit payment options provided in subsections 2 to 5 must be recalculated as if the qualifying member had selected payment of full benefits under subsection 1 and subsequent benefit payments made in accordance with that recalculation if the designated beneficiary dies before the retiree.