What is classified as extraordinary income in retirement plans?

Extraordinary income within the context of retirement plans refers to infrequent or non-recurring sources of income that may not be part of an employee's regular compensation. Lump sum payouts of vacation and sick time fit this definition because these payments are typically made when an employee leaves the organization or when there is a specific occurrence that warrants a one-time payout. These amounts are not received regularly and are considered extraordinary because they can significantly impact the overall financial situation of the employee at the time of receipt.

In contrast, annual salary increases and regular wages are predictable and part of an employee's ongoing compensation structure, thus not classified as extraordinary. Tax refunds, while potentially substantial, are considered a return of overpaid taxes rather than direct income generated by employment or work benefits. Therefore, they do not meet the criteria for extraordinary income in the context of retirement plans.