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Benefit Calculation

The three systems administered by KPPA are qualified defined benefit plans. A defined benefit plan pays benefits based on a formula.

Formula
Final Compensation * Benefit Factor * Years of Service = Annual Benefit

If there is an early retirement penalty, it will also be used in the formula.

Final Compensation

A Tier One member's Final Compensation, or Salary Average, is determined by dividing the total salary earned (5-High or 3-High) by the total months worked, then multiplying by twelve (12). 

Nonhazardous retirement benefits are based upon a 5-High Final Compensation. When Final Compensation is based on the 5-High, it must include at least 48 months and a minimum of five fiscal years. The years used do not have to be full (12 month) years. 

Hazardous retirement benefits are based upon a 3-High Final Compensation. When Final Compensation is based on the 3-High, it must include at least 24 months and a minimum of three fiscal years. The years used do not have to be full (12 month) years.

Member Pension Spiking

In 2017, Kentucky Revised Statute 61.598 was amended to establish a different process for pension spiking.

Under current law, KPPA reviews the last five fiscal years of employment for Tier 1 and Tier 2 members retiring on or after January 1, 2018. Any increase in salary earned after July 1, 2017 in excess of 10% from the immediately preceding fiscal year will be exempt from creditable compensation when calculating the member's retirement benefit, if the fiscal year is to be used in the member's final compensation. KPPA will refund member contributions and interest attributable to the reduction in creditable compensation back to the employer. KPPA will allocate the employer contributions to the appropriate system to offset the unfunded pension liability.                    

A member's final compensation will be adjusted unless the increase in creditable compensation by more than 10% is due to one of the following exemptions:

  1. Bona Fide promotion or career advancement;
  2. Lump sum payout for compensatory time at termination only;
  3. Lump sum payout for alternate sick leave payments;
  4. Increases in years where the member was on leavewithout pay in the prior fiscal year;
  5. An increase due to overtime work and pay as the result of a state or federal grant, grant pass-through, ora  similar program that requires overtime as a condition or necessity of the employer's receipt of the grant;
  6. An increase due to overtime work and pay required by a federal or state-declared emergency.

Important Note: For retirement dates of July 1, 2021 and after, the 10% cap on creditable compensation growth will not apply when it results in a benefit change of less than $25 per month. If there is a benefit change of $25 or more per month due to pension spiking, the member's creditable compensation will be reduced by the appropriate amount to meet the new $25 monthly threshold.

Member Pension Spiking FAQs

Benefit Factor

Tier One Benefit factors are set by statute and vary depending upon the type of service, participation date, service, and retirement system. 

Nonhazardous Member Benefit Factors

KERS:

  • 1.97% - If you do not have 13 months credit for 1/1/1998 - 1/1/1999 

  • 2.00% - If you have 13 months credit for 1/1/1998 - 1/1/1999

CERS:

  • 2.20% - If began participation prior to August 1, 2004

  • 2.00% - If began participation on or after August 1, 2004

Hazardous Member Benefit Factors

  • KERS: 2.49% 

  • CERS: 2.50% 

  • SPRS: 2.50% 

Years of Service

The years of service used in a Tier One member's calculation include current service, prior service, purchased service, and sick leave service. 

  • Current Service - Service earned by working in a participating position. 

  • Prior Service - Service earned before the establishment of the retirement Systems (July 1, 1956, for KERS, July 1, 1958, for CERS and SPRS). 

  • Purchased Service  - Service purchased by the member to enhance the retirement benefit. 

  • Sick Leave Credit   - Accrued sick leave balance at the time of retirement.

What do I Pay and What Does My Employer Contribute? 

Members pay a pre-tax 5% rate based on creditable compensation, if nonhazardous; 8% if hazardous duty. Employers pay different rates based on the member's system, and nonhazardous vs. hazardous duty. The employer contributions are paid into the Retirement Allowance Account, and are used for paying monthly benefits. The CERS employer contribution rate is determined by the Board of Trustees, and the KERS and SPRS rates are approved by the General Assembly during the biennial budgeting process. View the current Employer Contribution Rates

Am I Eligible for a Refund of My Account if I Quit My Job?

At the time of termination, you are eligible to either take a refund of your accumulated account balance or begin receiving monthly payments, if eligible for retirement. You can also leave your funds in your account until the time you either become reemployed or are eligible to retire. If you terminate employment and request a refund, you are eligible only for your member contributions and associated interest. Learn more on our Refund of Contributions page.


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