(a) Compensation.      
        (1) Section 851.001(6) of the Act provides the definition of compensation for purposes of the Act. For avoidance of doubt, the definition of compensation includes, but is not limited to, the following additional types of compensation in this paragraph and compensation described in paragraph (2) of this subsection subject to the limitations therein, and excludes compensation described in paragraph (3) of this subsection:                  (A) base pay and additional compensation paid for additional duties, longevity, overtime or special duties;                   (B) vacation and sick leave pay;                   (C) monetary and nonmonetary compensation (the value of which is determined by the participating municipality) taxable as income, including, but not limited to, car or uniform allowances and imputed income from fringe benefits;                   (D) severance payments; and                   (E) workers' compensation paid as temporary wage replacement and reported or verified to the municipality.         
        (2) Compensation is limited to payments made to an employee for performance of personal services and made before or within a reasonable time, as determined by the system in its sole discretion, after bona fide termination of the employee.       
        (3) Compensation does not include short-term or long-term disability insurance payments received by an employee.       
      (b) Department.      
        (1) Definition of "department" may include:                  (A) an economic development corporation established by a participating municipality pursuant to the Development Corporation Act (Subtitle C1, Title 12, Local Government Code), for which corporation the municipality's governing body has passed an ordinance pursuant to §501.067(a)(2), Local Government Code; or                   (B) a recognized division that is an instrumentality of a participating municipality:                      (i) that is created to carry out a municipal function (for example, public park creation and maintenance, economic stimulus and development, or administration of port facilities);                       (ii) that is controlled by the municipality:                          (I) by the municipality maintaining the ability to appoint and remove the members of the governing body for the instrumentality; and                           (II) by the municipality retaining the ability to dissolve the instrumentality; and                         (iii) for which the assets of the instrumentality revert to the municipality upon the dissolution of the instrumentality.           
        (2) Notwithstanding the foregoing, the determination of whether or not any economic development corporation, instrumentality, or other recognized division is or is not a department for purposes of the Act shall be made by the system, in its sole discretion.       
        (3) An employee of a participating department who performs services for a nonparticipating entity pursuant to an agreement duly authorized by the participating municipality that governs the department remains a member of the system.       
      (c) Spouse. A spouse does not include a person separated from the participant under a decree of divorce or annulment.     
     Source Note:        The provisions of this §123.1 adopted to be effective November 19, 2020, 45 TexReg 8171