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Benefit Calculation

​How is my Benefit Calculated?

The three systems operated 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

For Tier Two members, Final Compensation is determined by dividing the total salary earned (Last 5 or 3-High) by the total months worked, then multiplying by twelve (12) to annualize. 

Nonhazardous retirement benefits are based on the last (not highest) five full fiscal years of salary.  If the member does not have five full fiscal years, partial years will be added to reach the 60-month minimum. 

Hazardous retirement benefits are based on a member’s highest three full fiscal years of salary (3-High). If the member does not have three full fiscal years, partial years will be added to reach the 36-month minimum.

Member Pension Spiking

A member's final compensation will be adjusted if pension spiking is detected. A pension spike is when a member who is nearing retirement has their salary increase by more than 10% over the previous year's salary. Read more.

A member's final compensation will be adjusted unless the increase in creditable compensation 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 leave without 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, or a 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, state, or local government-declared emergency; or​​
  7. The first 100 hours of mandatory overtime in a fiscal year.               

Benefit Factor

Benefit factors are set by statute and vary depending upon the type of service (nonhazardous or hazardous), amount of service, and participation date. Benefit factors are applied based on a tiered structure. Higher factors are attained as Tier 2 members reach specified levels of service.

Nonhazardous Member Benefit Factors

  • 1.10% - Service Credit less than or equal to 120 months 

  • 1.30% - Service Credit between 121 and 240 months 

  • 1.50% - Service Credit between 241 and 312 months 

  • 1.75% - Service Credit between 313 and 360 months 

  • 2.00% - Service Credit in excess of 360 months only

Hazardous Member Benefit Factors

  • 1.30% - Service Credit less than or equal to 120 months 

  • 1.50% - Service Credit between 121 and 240 months 

  • 2.25% - Service Credit between 241 and 300 months 

  • 2.50% - Service Credit greater than 300 months

Years of Service

The years of service used to calculate retirement benefits include current service, prior service, purchased service, and sick leave service if the member's employer participated in an approved sick leave program.  

  • Current Service - Current service is earned as a contributing member after the establishment of the retirement system. For each month an employer reports wages and contributions for regular full-time employment​, a member earns one month of service credit. 

  • Prior Service - Service earned before July 1, 1956 in KERS and July 1, 1958 in CERS and SPRS. There is no cost for this service. A member must have at least 12 months and have worked at least 100 hours per month of current service in the same retirement system. 

  • Purchased Service - Service a participating member may purchase to increase service credit. Please note that most service purchases do not apply when determining retirement eligibility. 

  • Sick Leave Credit - Tier 2 members may receive a maximum of 12 months of service credit for unused sick time. Sick leave service credit counts toward health insurance benefits but cannot be used to determine retirement eligibility.

What do I Pay and What Does My Employer Contribute?

Tier 2 employees contribute a pre-tax percent of their creditable compensation as set by state law: nonhazardous employees pay 5% and hazardous employees pay 8%. These employee contributions are deposited to individual member accounts. All employees​ pay an additional 1% health insurance contribution that is deposited in a non-refundable trust to fund insurance benefits. 

Recommended employer contribution rates are determined by KPPA's independent actuary based on data in the annual actuarial valuation. The Boards of Trustees adopt employer contribution rates necessary for the actuarial soundness of the systems governed by the respective boards as required by state law. Employer contributions are used to fund benefits and to fund KPPA expenses. See the current Employer Contribution Rates.​

Can Tier 2 Members Opt-In to Tier 3? How?

Tier 2 members are eligible to opt-in to the Tier 3 Hybrid Cash Balance Plan. Tier 2 members that choose this option will have their accumulated contributions, less any interest earned, deposited into a hybrid cash balance account. Read more​.

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

Upon termination of employment, a member has three options in regard to their retirement account: (1) retire if eligible; (2) leave the contributions in their account until eligible to retire; or (3) take a refund of their account balance. Learn more on our Refund of Contributions page.

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